SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Rel. No. 42793 / May 18, 2000
Admin. Proc. File No. 3-9838
In the Matter of
MAXIMO JUSTO GUEVARA
8540 Forrest Avenue
Philadelphia, PA 19150
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 Conduct Rules
Just and Equitable Principles of Trade
Private Securities Transactions
Registered representative made unsuitable recommendations and engaged in prohibited private securities transactions. Held, association's findings of violation and sanctions imposed are sustained.
Maximo Justo Guevara, pro se.
Alden S. Adkins and Norman Sue, Jr., for NASD Regulation, Inc.
Appeal Filed: March 1, 1999
Briefing Completed: June 24, 1999
Maximo Justo Guevara, formerly a registered representative of MetLife Securities, Inc. ("MetLife") and Metropolitan Life Insurance Company, both members of the National Association of Securities Dealers, Inc. ("NASD"), appeals from NASD disciplinary action. The NASD found that Guevara made unsuitable recommendations and engaged in prohibited private securities transactions in violation of Conduct Rules 2110, 2310, and 3040. The NASD ordered that Guevara be censured, barred from associating with any member of the NASD, fined $100,000, required to make restitution to a customer in the amount of $13,992 plus interest at a rate of ten percent from the date of the investment, and assessed costs. We base our findings on an independent review of the record.
Guevara was employed by Metropolitan Life Insurance Company and MetLife as a registered representative from April 1985 to November 1994. In June 1994, Guevara saw a television advertisement about Mid-Tennessee Third Mobile ("MT3M"), a Nevada partnership. MT3M represented that it intended to develop a digital Specialized Mobile Radio ("SMR") system, a type of wireless communications network. MT3M claimed that it was a general partnership developed by Advanced Private Networks, Inc. ("APN"). Each MT3M unit cost $10,000.
Guevara contacted MT3M through the toll-free number listed in the television advertisement and offered his services as a salesman. MT3M sent him ten presentation folders, which included a "prospectus," a business summary, a general partnership agreement, and a risk disclosure document. MT3M told Guevara that he would be compensated by commissions of forty percent of the price per unit. Guevara testified that he did not consider this to be an unusually high commission rate.
Guevara contacted the Federal Trade Commission to determine whether there were any complaints lodged against MT3M. He also attended a general seminar about SMR systems. He made no other investigation of MT3M prior to selling the interests.
Between June and October 1994, Guevara sold MT3M units to three of his MetLife clients. Each of these customers was unsophisticated in business affairs. Guevara did not disclose to these customers that he was an agent for MT3M or that he was not acting in his capacity as a representative for MetLife. He did not notify MetLife that he was selling MT3M units to his MetLife customers, "[b]ecause I don't know of anyone who quits a job to go find another." Nonetheless, he was aware that MetLife would fire him if he was caught selling products for another firm.
A. Mary Davis
In June 1994, Guevara sold Mary Davis four MT3M units for about $38,000. 1 Davis was a retired classroom assistant whose salary during her last year of teaching had been $15,000; her husband was disabled. The Davis's combined income for 1994 wasless than $24,000 per year. Their assets consisted of a principal residence and an inherited rental property, together worth approximately $56,000. Davis had no investment experience, other than her earlier purchase of a $30,000 annuity from Guevara and some savings bonds. She liquidated her annuity to finance her purchase of the MT3M units.
Davis bought the MT3M units on Guevara's recommendation. Guevara told her that MT3M was going to make "fast money" because cellular phones were going to be popular. Guevara did not show her a prospectus before her purchase. Davis did not understand how the investment worked. She had no understanding about what a partnership was. 2 She had no expertise or knowledge about mobile telecommunications. She thought that MT3M would "make money" for her, and that she would be receiving income from MT3M on a monthly basis.
Davis did not think Guevara was receiving a commission or any compensation for selling MT3M, but rather brought MT3M to her attention "to help me out." She also believed that Guevara was selling MT3M as a representative of MetLife. Davis testified before the NASD that she could not afford to lose the money she invested in MT3M. 3
B. Edith Barclay
Guevara sold Edith Barclay two MT3M units for $20,000 in September 1994. In 1997, at the time of the hearing, Barclay was sixty-nine years old and had been on disability for twenty years. She received income from Social Security and from rental properties that generated about $1,600 monthly. She had savings of about $28,000. She had no telecommunications or investment experience.
Guevara told Barclay that MT3M was a very good investment. When Barclay expressed concern about losing her money, Guevara assured her that "nothing is certain but [MT3M] looks good." He also assured her that "he didn't feel this was a real risk." Barclay anticipated that her MT3M interest would increase her monthly income. She knew that she was purchasing a partnership interest. However, she did not understand the difference between a general and a limited partner or what were the responsibilities of a partner. She purchased the partnership interests out of her $28,000 in savings. She did not know how or if Guevara was being compensated for his sales of MT3M. At the hearing, Barclaytestified that she considered her investment in MT3M to be a total loss.
C. Annie King
In October 1994, Guevara sold Annie King two MT3M units for $20,000. At the time she bought the units, King was sixty-two years old and had retired. Her sole source of income was a survivor's annuity from her first husband that paid $647 per month. Her second husband had died in June 1994, leaving her $50,000 in proceeds from his life insurance policy. Her remaining assets consisted of a checking account, a home encumbered by a home equity loan, and two cars. 4 She had no telecommunications or investment experience. She testified that she did not understand what the term "investment objective" meant.
Guevara told King that MT3M was a good investment. When asked if she had relied on Guevara's recommendation of MT3M, she replied, "100%." Guevara told her she would be purchasing a general partnership interest, but she did not know what that signified. King used part of the proceeds from her late husband's life insurance to purchase the MT3M partnership interests. King testified that she would never have purchased MT3M if she had been told that she could lose the money she invested in it.
At some point after she purchased the MT3M interests, King received notice of the meeting to elect MT3M "officers." The election meeting was in Tennessee, and King did not attend. She stated that she did not consider herself a "manager" of MT3M "at all."
King subsequently needed money and tried to recover her investment. She contacted an attorney who wrote to MT3M for her. As of the date of the hearing, her funds had not been returned. 5
The NASD found that the interests in MT3M, although described as general partnership interests, were securities. It found that Guevara: (1) made unsuitable recommendations to thethree customers in violation of NASD Conduct Rules 2310 and 2110, and (2) violated NASD Conduct Rules 3040 and 2110 by selling MT3M units without obtaining prior approval from MetLife.
A. MT3M General Partnerships Constitute Investment Contracts.
In SEC v. Howey, 6 the United States Supreme Court defined an "investment contract" under the securities laws as a security in which "a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party . . . ." 7
General partnerships ordinarily are not considered to be securities under the federal securities laws. In a true general partnership, general partners control significant decisions of the enterprise, and therefore do not ordinarily rely on the efforts of promoters or third parties. However, where investors are prevented from making these significant decisions, "this Commission and the courts will look through form to the substance of the investment arrangements to determine whether the interests involved are securities." 8
In Williamson v. Tucker, 9 the United States Court of Appeals for the Fifth Circuit found that a general partnership could be an investment contract, and thus a security, if the investor established that: (1) an agreement among the parties leaves so little power in the hands of the investor that the arrangement in fact distributes power as would a limited partnership; (2) the investor is so dependent on some unique entrepreneurial or managerial ability of the promoter or managerthat he or she cannot replace the manager of the enterprise or otherwise exercise meaningful partnership or venture powers; or (3) the investor is so inexperienced and unknowledgeable in business affairs that the investor is incapable of intelligently exercising managerial powers. 10
Guevara argues that his customers had the power to manage MT3M. The General Partnership Agreement here provided, among other things, that: (1) decisions affecting the management, operation, or control of the Partnership, including electing managing partners, must be approved by a majority-in-interest of the partners; (2) each partner represents and warrants that "the success of the partnership's business will depend upon the active participation and involvement in partnership matters of all partners"; and (3) each partner has access to the partnership's books and records during office hours.
The General Partnership Agreement, however, also provided that APN was the "Initial Managing Partner" until replaced at a meeting of the partners. The General Partnership Agreement provided that APN would manage the partnership until 60 days after the last "Voting Partner" (i.e., a partner other than APN) was admitted to the partnership. Moreover, even after the managing partners were elected, the ability of the partners who were not on the committee to exercise management was limited. Since there were as many as 900 investors nationwide, no individual partner could exercise meaningful control.
Moreover, MT3M investors also authorized execution of a Development and Consulting Agreement with APN to provide system development. APN was to undertake the installation of the transmission facilities, extensive post-purchase services upon which the future profits of the enterprise depended. The general partners could not exercise powers over the SMR system until after APN delivered the SMR system to MT3M. APN controlled all aspects of the "day-to-day operation" and the acquisition and development of the MT3M SMR system. MT3M could not access APN's records regarding the system until after APN delivered the SMR system. Thus, apart from the limitations on governance, the customers were dependent on the efforts of APN and had no legal ability to control MT3M with respect to its most important operations.
Guevara's customers were extremely inexperienced in business affairs. None of the three had prior securities experience. None of the three understood what a general partnership involved or what the function of a partner was, and Guevara did not provide them with that information before their investment. These investors did not understand that they should be anything other than passive investors in the enterprise. Moreover, none of the customers had telecommunications experience. Indeed,Guevara admitted in his testimony that he did not believe his customers were qualified to be general partners in a telecommunications company. 11
Given these factors, we find that the MT3M interests were securities. Under the General Partnership Agreement, MT3M investors had little managerial power. Because of that agreement and the Development and Consulting Agreement, the investors were dependent on APN for the success of the venture. Guevara's customers had neither the experience nor the sophistication to contribute to the management of the enterprise.
B. Guevara Made Unsuitable Recommendations.
Before recommending a transaction, NASD Conduct Rule 2310 requires associated persons to have "reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs." The MT3M offering document stated that the partnership interests involved a "high degree of risk." It further disclosed that the digital SMR system would take two years to complete. A business plan for MT3M stated that, because of "initial digital conversion costs, MT3M should budget for early losses." The business plan further stated that "Mid-Tennessee  will most likely not achieve positive cash flow in the first one to two years of operation." Guevara failed to do a sufficient investigation of MT3M that would have permitted him to understand the nature of the company and its risks.
Guevara recommended and effected transactions in MT3M that were wholly unsuitable given his customers' age, the speculative and illiquid nature of the investment, his customers' limited financial means, and his customers' conservative investment objectives. As described above, these three customers were retired, with little tolerance for risk, and were unsophisticatedinvestors. 12 These customers made clear to Guevara that they could not afford to lose their money and that they needed income.
Guevara claims that the funds invested in MT3M came from his customers' "discretionary funds." However, he defined "discretionary funds" for one customer as funds that were not "bread from her table." He testified that he considered retirement funds of another customer to be "discretionary." In fact, each of these customers needed monthly income and had only limited ability to generate such income. This investment on its face was not suitable for that goal. 13 Guevara's conduct also was inconsistent with Conduct Rule 2110, which requires observance of "high standards of commercial honor and just and equitable principles of trade." 14
C. Guevara Engaged in Private Securities Transactions.
NASD Conduct Rule 3040 prohibits associated persons from participating in any manner in a private securities transaction outside the regular scope of their employment without providing prior written notice to the member firm. 15 Guevara does not deny that he made sales to these three customers, admits that he did not give MetLife prior written notification of his intention to make these sales, and admits that he did not receive prior written permission from MetLife to make these sales.
Guevara argues that he did not violate this rule because he "did not enjoy a true 'employer-employee' relationship and therefore was not working for [MetLife] at the time." We havepreviously held, however, that Rule 3040's prohibitions apply so long as the associated person is registered with his or her member firm. 16 Guevara admits that he had neither resigned nor been discharged from MetLife at the time he made the sales. Guevara also admits that he knew that, if MetLife had discovered his activities on behalf of MT3M, he would have been terminated. Guevara's sales of MT3M violated Rules 3040 and 2110.
Guevara complains that in various respects the proceedings were unfair:
- Guevara contends that the NASD improperly instituted this disciplinary proceeding against him. He asserts that none of his customers complained about him to the NASD. 17 However, the NASD's power to enforce its rules is independent of a customer's decision not to complain. 18
- Guevara further asserts that the NASD staff, and the securities industry generally, are racist and that he was the subject of selective prosecution. 19 To establish selective prosecution, Guevara must show both that he was singled out for enforcement action while others similarly situated were not, andthat the action was motivated by arbitrary or unjust considerations, such as race. 20
Guevara does not contend that others who made unsuitable recommendations and sold away from their firms were exempted from disciplinary action. As noted, the NASD's investigation began when Guevara's conduct in selling MT3M interests was brought to the NASD's attention by Davis's insurance agent.
Rather, Guevara asserts that the NASD normally will conduct an investigation when a member firm terminates a registered representative under circumstances that appear out of the ordinary. Guevara complains that, after the events at issue, he was terminated by another member firm. However, the NASD did not investigate Guevara's termination despite his requests for it to do so. Guevara has not shown that he was the subject of selective prosecution. Nor has he demonstrated how the NASD's actions with respect to his subsequent termination by an unrelated member firm are in any way connected to this proceeding.
- Guevara argues that the District Committee's questions directed to him were motivated by bias. It appears that the Hearing Panel was attempting to confine the record to relevant evidence and provide procedural direction to Guevara. We find no impropriety in the conduct of the Hearing Panel. 21
Guevara also asserts that the Hearing Panel was impolite to Barclay. The record, however, reflects that the Hearing Panel and NASD counsel were polite and solicitous to Barclay. When asked, Barclay disagreed with Guevara that she had been treated unfairly by the Hearing Panel or NASD staff.
- Guevara complains that NASD counsel deliberately failed to introduce Guevara's exhibits into the record although Guevara sent them to counsel before the hearing. However, it is the applicant's obligation, not the NASD's, to marshal all the evidence in his defense. 22
The Hearing Panel repeatedly told Guevara that he should introduce the evidence that he wanted into the record, and it adjourned the hearing to permit Guevara to make copies of his proposed exhibits. Thereafter, the Hearing Panel admitted all of the documents Guevara introduced at the hearing. All the documents to which Guevara refers are in the record before us. 23 Guevara therefore suffered no disadvantage.
- Guevara claims that the Hearing Panel conducted testimony in his absence. He cites an eight-page section in the transcript in which there is no indication that Guevara speaks. The disputed section of the transcript, which is at the beginning of the second day of hearings, begins with Guevara stating that he is ready to proceed. At the end of the eight pages, he asks to see the document that was being discussed. We find no basis for Guevara's assertion. 24
- Guevara claims that the chairman of the hearing panel improperly participated in the hearing. Guevara testified that he interviewed at a branch office of the chairman's firm and was rejected for a position there. Guevara did not interview with the chairman, and there is no evidence that the chairman wasaware of Guevara's application for employment with the firm. 25 There is no evidence that the chairman's participation "substantially affect[ed] [the chairman's] interest or the interest of any person in whom he is directly or indirectly interested." 26
- Guevara complains that the NASD charged him both with engaging in private securities transactions in violation of Conduct Rules 2110 and 3040 and with engaging in outside business activities in violation of Conduct Rules 2110 and 3030. 27 Guevara was aware fully of the underlying conduct complained of, his activities in selling MT3M interests outside of his employment with MetLife. He vigorously defended against the allegations with respect to the propriety of his activities with MT3M and whether the MT3M interests were securities. Guevara has not demonstrated that he suffered any prejudice. 28
- Guevara claims that NASD Regulation staff forged Davis's signature to a letter in the record. While Davis testified that she did not recall personally writing the letter, she testified that the content of the letter was "correct." Her testimony at the hearing is consistent with the letter. There is no evidence to support Guevara's claim of forgery. Moreover, even if we were to exclude the letter, Davis's testimony amply supports the NASD's conclusions.
- Guevara contends that the District Committee proceedings deprived him of his "right against self-incrimination." There is no privilege against "self-incrimination" in NASD proceedings. 29
Guevara contends that the sanctions are excessive. He argues that he has no disciplinary history and that none of his customers lost money. We review these sanctions under Section 19(e) of the Securities Exchange Act of 1934. 30 On the basis of our review of the record, we do not conclude that the sanctions are either excessive or oppressive or impose any burden on competition.
Guevara sold an investment that he discovered through a television advertisement without investigating the financial risks that it posed to his customers. He anticipated earning commissions of forty percent. These investments were unsuitable for these customers, given their personal situations, financial circumstances and investment objectives. Contrary to Guevara's assertions, all three customers testified that they attempted to recoup their money from MT3M without success.
The NASD Sanction Guidelines for private securities transactions recommend a bar in serious cases, including those in which there are willful disregard of known requirements, attempts to conceal the activity, or numerous sales, factors that are present here. Guevara induced at least three customers to purchase the MT3M interests. Guevara purposely failed to inform MetLife of his activities. He knew that he would be terminated if MetLife became aware of his outside activities. At least one of these customers believed that Guevara was acting as a MetLife salesman when he made his recommendation to purchase these interests. The Guidelines further suggest a fine of $5,000 to $50,000 for each such violation. The NASD imposed a total fine of $50,000 for Guevara's violations of the private securities transaction prohibition.
The Guidelines for "numerous recommendations of clearly unsuitable securities and no prior similar misconduct" recommend a fine amounting to the respondent's commissions plus $5,000 to $50,000 per violation. The NASD fined Guevara a total of $50,000 for the three unsuitable recommendations, placing each unsuitable recommendation in the middle of the recommended range.
The NASD ordered restitution of $13,992, representing the commission from the sale of MT3M to Davis. 31 While Guevara claimed that he received only approximately $3,200 from this sale, the District Committee observed his demeanor and did not credit his testimony. Moreover, he provided no evidence to support this contention. 32 We find the NASD's sanctions are neither excessive nor oppressive.
An appropriate order will issue. 33
By the Commission (Chairman LEVITT and Commissioners JOHNSON, HUNT, CAREY and UNGER).
Jonathan G. Katz
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Rel. No. 42793 / May 18, 2000
Admin. Proc. File No. 3-9838
In the Matter of
MAXIMO JUSTO GUEVARA
8540 Forrest Avenue
Philadelphia, PA 19150
For Review of Disciplinary Action Taken by the
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
ORDER SUSTAINING DISCIPLINARY ACTION TAKEN BY REGISTERED SECURITIES ASSOCIATION
On the basis of the Commission's opinion issued this day, it is
ORDERED that the disciplinary action taken by the National Association of Securities Dealers, Inc. against Maximo Justo Guevara, and the Association's assessment of costs, be, and they hereby are, sustained.
By the Commission.
Jonathan G. Katz
1 Davis apparently was credited with an investment of $40,000. The shortfall was deducted from Guevara's commission, leaving him a net commission of $13,992.14.
2 Davis testified that at some point she received notice of a meeting of the partners, but she "did not have the money to attend. I couldn't afford it."
3 At the hearing, Davis testified that she had filed an arbitration claim in connection with her purchase of MT3M.
4 King subsequently sold the house for $90,000 to repay the home equity loan and other bills. At the time of the hearing, she lived with her sister.
5 It appears that the MT3M SMR system was never built. The record includes documents filed in a federal district court private class action alleging fraud against certain MT3M promoters and partners. There is also reference to a state court action.
6 328 U.S. 293 (1946).
7 Id. at 299.
8 Jay Frederick Keeton, 50 S.E.C. 1128, 1132 n.13 (1992) (citing cases discussing when a general partnership may be deemed a security: Koch v. Hankins, 928 F.2d 1471, 1476 (9th Cir. 1991); Youmans v. Simon, 791 F.2d 341, 346 (5th Cir. 1986); SEC v. Professional Associates, 731 F.2d 349, 357 (6th Cir. 1984)). But see, Goodwin v. Elkins, 730 F.2d 99 (3d Cir.), cert. denied, 469 U.S. 831 (1984). In Goodwin, a divided panel concluded that the general partnership at issue was not a security. One judge suggested that general partnership interests cannot be investment contracts because Pennsylvania partnership law provides general partners with an active role in the management of the firm. The two remaining members of the panel declined to determine that a general partnership could never be deemed a security.
9 645 F.2d 404 (5th Cir.), cert. denied, 454 U.S. 897 (1981).
10 Id. at 424.
11 Guevara also claims that he relied on the issuer's representations that the units were not securities and his sales therefore did not violate Rule 3040. A registered person cannot rely, however, on an issuer's representations but must seek an official opinion by appropriate firm personnel. Frank W. Leonesio, 48 S.E.C. 544, 548 (1986) (registered representative may not rely on self-serving statements of an issuer); see Gilbert M. Hair, 51 S.E.C. 374, 377 (1993) (registered representative's reliance on representation printed on the instrument stating that instrument was not a security, rather than seeking the opinion by appropriate member firm personnel is an insufficient basis for concluding that a transaction is not subject to the rule prohibiting private securities transactions).
12 Guevara notes that King subsequently opened an account with him when he joined Merrill Lynch. Her account opening statement defines her investment objective as "aggressive." King, however, testified that she did not know what an investment objective was. Moreover, under questioning by Guevara, she repeatedly stated that she had never said her goals were "aggressive."
13 Larry Ira Klein, 52 S.E.C. 1030, 1037-38 (1996) (where customers could not afford to risk principal and were unsophisticated, high-risk investments were unsuitable); Gordon Scott Venters, 51 S.E.C. 292, 294-95 (1993) (when broker learned that customer was 75 years old and of limited means, he had a duty to advise against speculative investment despite customer's enthusiasm).
14 Larry Ira Klein, 52 S.E.C. at 1031 (general securities representative who made unsuitable recommendations did not adhere to rule requiring "high standards of commercial honor and just and equitable principles of trade").
15 See Darrell Jay Williams, 50 S.E.C. 1070, 1071 (1992).
16 See Dale M. Russell, 51 S.E.C. 561 (1993) (registered representative who had submitted U-4 and supporting documentation to a firm was prohibited from engaging in unapproved sales even though he intended to delay the processing of his registration to allow him to make such sales).
17 Contrary to Guevara's assertion, it appears that the NASD's investigation resulted, at least indirectly, from a customer complaint. Davis testified that she became concerned about her MT3M investment and discussed it with her new insurance agent, who was also a registered representative. The agent, in turn, reviewed Davis's MT3M documents and brought the matter to the NASD. In response to NASD's inquiries, Guevara identified both Barclay and King as additional purchasers of MT3M interests
18 Bernard D. Gorniak, 52 S.E.C. 371 (1995); Ronald J. Gogul, 52 S.E.C. 307 (1995).
19 Guevara complains about his treatment at other securities firms, unrelated to the events here. It appears that he has filed complaints with the Equal Employment Opportunity Commission regarding these matters.
20 U.S. v. Huff, 959 F.2d 731, 735 (8th Cir.), cert. denied, 506 U.S. 855 (1992); C.E. Carlson, Inc. v. SEC, 859 F.2d 1429, 1431 (10th Cir. 1988).
21 See United States v. Laurins, 857 F.2d 529, 537 (9th Cir. 1988) ("A trial judge is more than an umpire, and may participate in the examination of witnesses to clarify evidence, confine counsel to evidentiary rulings, ensure the orderly presentation of evidence and prevent undue repetition."), cert. denied, 492 U.S. 906 (1989).
Guevara also alleges bias on the part of the NASD staff. We find no bias on the part of the staff. Moreover, it is the NASD, not the staff that makes decisions. "Even if a member of the staff were biased, that would not mean that the NASD decision is biased." Frank J. Custable, Jr., 51 S.E.C. 855, 862 n.22 (1993).
22 G.K. Scott & Co., Inc., 51 S.E.C. 961, 972 (1994), aff'd, 56 F.2d 1531 (D.C. Cir. 1995) (Table).
23 Guevara complains to us that a letter written to NASD counsel that Guevara variously characterizes as being dated September 1996 or 1997 is not in the record. A September 1996 letter to NASD counsel is in the record before us.
Guevara also complains that the NASD did not transcribe this letter, which is handwritten. It appears that, as an accommodation, NASD counsel had prepared typed versions of earlier letters handwritten by Guevara. Nothing in the NASD's Code of Procedure obligates the NASD to transcribe any handwritten letter.
24 Guevara also makes the claim that the NASD's attorney-advisor to the panel caused the court reporter not to record portions of Guevara's testimony. There is nothing in the record to substantiate this claim, and Guevara never made any objection about this alleged conduct during the hearing.
25 It further appears that Guevara waived this argument. Before the hearing, Guevara was afforded the opportunity to identify panelists and member firms that he believed should be disqualified from hearing this matter. Guevara identified twenty firms to which he objected. He did not list the chairman's firm in his submission.
26 Art. X, Sec. 1 of the NASD Code of Procedure (standard for disqualification to participate in proceedings in effect at the time of this matter).
27 The NASD argues that Guevara violated either Rule 3040 or Rule 3030. Rule 3030 prohibits an associated person from engaging in any outside business activity without prior written notice to his or her member firm. Violation of Rule 3040 requires that a security be sold; violation of Rule 3030 requires only that a registered person engage in outside employment. The NASD concluded that Guevara violated Rule 3040. Our review is limited to that conclusion.
28 Compare RFG Options Co., 49 S.E.C. 878 (1988) (no prejudice where Commission staff changed nature of original charge during the opening statement of the hearing).
29 Stratton Oakmont, Inc., 52 S.E.C. 1170 (1997).
30 15 U.S.C. § 78s.
31 Guevara testified that MT3M never paid him his commissions from the Barclay and King transactions.
32 The record included a facsimile transmittal indicating $13,992.14 had been wired to Guevara.
33 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.