Securities and Exchange Commission
In the Matter of the Application of
DANIEL D. MANOFF
For Review of Disciplinary Action Taken by the
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
OPINION OF THE COMMISSION
REGISTERED SECURITIES ASSOCIATION REVIEW OF DISCIPLINARY PROCEEDING
Violation of Conduct Rule
Conduct Inconsistent with Just and Equitable Principles of Trade
Registered representative of member firm engaged in conduct inconsistent with just and equitable principles of trade and high standards of commercial honor when he made unauthorized use of co-worker's credit card numbers. Held, association's findings of violation and sanction it imposed are sustained.
John M. Shoreman, of McFadden & Shoreman, for Daniel D. Manoff.
Jeffrey Holik, Norman Sue, Jr., and Nancy C. Libin, for NASD Regulation, Inc.
Appeal filed: May 29, 2001
Last brief received: August 29, 2001
Daniel D. Manoff, a former registered representative with Guardian Investor Services Corporation ("Guardian"), a whollyowned subsidiary of Guardian Life Insurance Company ("Guardian Life") and a member of the National Association of Securities Dealers, Inc. ("NASD"), appeals from NASD disciplinary action. The NASD found that Manoff made unauthorized use of a co-worker's credit card numbers, in violation of NASD Conduct Rule 2110. 1 The NASD barred Manoff from association with an NASD member in any capacity. 2 We base our findings on an independent review of the record.
From July 1997 through April 1998, Manoff was employed as a financial representative with Guardian. In late 1997 or early 1998, Manoff's co-worker, M. Lynne Fisher, a clerical employee at Guardian, asked Manoff for professional financial advice. Manoff agreed and offered to evaluate Fisher's finances through the LEAP Systems, Inc. ("LEAP") program, a financial planning program that he used with clients. 3
As part of the LEAP process, Manoff gave Fisher a detailed "Confidential Questionnaire" to complete. Manoff wrote Fisher's name on the cover of the Questionnaire beneath the typewritten word "client." The Questionnaire requested that clients submit certain financial documents to their financial representative. The Questionnaire also provided that documents received by the representative would be "professionally safeguarded under strict, confidential control." Fisher stated that she completed the LEAP Questionnaire and submitted it to Manoff, along with her personal financial documents, including account statements containing the numbers for her Chevy Chase Bank and First USA Visa credit cards.
During the NASD investigation, Manoff denied that he had received Fisher's completed LEAP Questionnaire. At the hearing, however, Manoff admitted that he had received Fisher's completed Questionnaire, but alleged that he did not receive any documents containing the account numbers for her Chevy Chase Bank and First USA Visa credit cards. Manoff also stated that he had terminated the LEAP process immediately after reviewing Fisher's financial documents because he believed that he could not help her. Fisher testified that she understood the LEAP process took several months to complete, and that she was unaware of any decision by Manoff to discontinue it.
In February 1998, Manoff learned that a $4,565 payment was due for his daughter's college tuition. Manoff testified that Fisher insisted on lending him the funds. Fisher, on the other hand, claimed that Manoff asked if he could borrow the money from her. Fisher testified that she agreed to lend Manoff the money in response to his request because she considered him a friend and had lent money to friends before. On February 10, 1998, Fisher called the college in Manoff's presence and charged the payment to her Chevy Chase Bank Visa card. That same day, Manoff and Fisher signed a written loan agreement memorializing Manoff's
obligation to repay Fisher $4,565, plus interest, and identifying the account number of the Chevy Chase Bank Visa credit card.
Over the next two weeks, Manoff used Fisher's Chevy Chase Bank and First USA Visa card numbers to effect four transactions, set forth below, totaling $3,745. Fisher testified that she was waiting for the results of her LEAP evaluation from Manoff when the charges were made. Fisher testified that she did not know of or authorize any of the transactions. No loan agreements were executed in connection with the four transactions.
The first transaction was posted on February 11, 1998, and involved a $1,000 charge to Fisher's Chevy Chase Bank Visa card number. The $1,000 charge paid a debt Manoff owed to Serving the Nation, Inc. ("STN"), a private investigation firm. Manoff gave inconsistent testimony regarding this charge. During the NASD's investigation, Manoff stated that he called STN and charged the $1,000. At the hearing, however, Manoff stated that Fisher made the call to STN. When confronted with his earlier, investigative testimony that he, not Fisher, had called STN, Manoff admitted that he had made the call, but claimed that Fisher came on the line and authorized the charge.
Fisher testified that she did not authorize the $1,000 charge and was not present for any telephone call. Fisher's version of events was supported by the testimony of STN principal George Bradley. Bradley testified that Manoff had tried to pay the STN debt by check, but that the check had been returned for lack of funds. Manoff then charged the STN debt to Fisher's Chevy Chase Bank Visa card number. Fisher stated that she did not know about the charge until it appeared on her account statement. Bradley did not know that the number belonged to Fisher until Fisher called and inquired about the STN charge on her credit card statement. Bradley reviewed STN's copies of credit card receipts and matched Fisher's credit card number to Manoff's receipt. When Bradley asked Manoff about his use of Fisher's credit card number, Manoff replied that he must have made a mistake and confused Fisher's credit card number with his wife's credit card number.
On February 18, 1998, Manoff again used Fisher's Chevy Chase Bank Visa card number, this time to effect two charges in the amounts of $240 and $310 to pay for materials that he needed inorder to use the LEAP program. During the NASD's investigation, Manoff testified that Fisher offered to lend him the money to buy the materials and gave him her Chevy Chase Bank Visa card. Manoff then called LEAP and charged the materials to that card. At the hearing, Manoff testified that Fisher wrote her Chevy Chase Bank Visa card number on the order forms for the LEAP materials, and that he did not speak to anyone from LEAP. Fisher denied that she had authorized Manoff to use her credit card number to purchase the materials.
On February 24, 1998, Manoff used Fisher's other credit card number the First USA Visa number to charge a $2,195 LEAP seminar fee. Manoff testified that Fisher agreed to lend him the money for the seminar. Manoff also testified that Fisher was present when he called LEAP and charged the $2,195 to her First USA Visa card. According to Manoff, Fisher read the First USA Visa credit card number to him while he wrote it down on the registration form. Manoff further testified that Fisher later faxed the registration form, along with the order forms for the LEAP materials, to LEAP's office. Manoff's testimony concerning the $2,195 charge was inconsistent with the LEAP registration form, which specified the Chevy Chase Bank Visa credit card as the method of payment for the seminar fee. Although Fisher's purported signature appeared at the bottom of the registration form, Fisher denied that she had signed it or authorized anyone to sign for her. 4 Fisher also denied that she had faxed the registration form to LEAP. Fisher acknowledged that the fax transmission report bore her personal fax code, but asserted that others in the office used her fax code to transmit documents. Fisher maintained that she did not authorize Manoff to use her credit card number to pay for the seminar.
Fisher testified that she confronted Manoff as soon as she discovered the STN debt and LEAP expenses charged to her credit cards. Manoff told Fisher, as he had told Bradley, that he must have confused Fisher's credit card number with his wife's credit card number because he had placed them on yellow "Post-it" notes. Fisher told Manoff that she could not pay his charges. Manoff promised to pay them and wrote some checks, but all in amounts less than the minimum amount due on the accounts. Fisher included Manoff's checks when she paid her bills.
In April 1998, Fisher was notified that the balance on her Chevy Chase Bank Visa credit card had exceeded her credit limit, and that her charging privileges had been temporarily suspended. Fisher also learned that one of Manoff's checks made payable to Chevy Chase Bank had been returned for lack of funds. Fishertestified that "things were spiraling" and that she "couldn't take it anymore." Fisher notified Quincy M. Crawford, Jr., the head of the office, of these events. Fisher also wrote to the president of LEAP and to a Guardian compliance officer. Crawford met with Manoff to discuss Fisher's concerns. Manoff maintained that he inadvertently had confused his wife's credit card number with Fisher's credit card number. Manoff's employment with Guardian subsequently was terminated.
The NASD began an investigation after Guardian filed a Uniform Termination Notice for Securities Industry Registration (Form U-5) in connection with Manoff's termination. The NASD brought a complaint alleging that Manoff made unauthorized use of Fisher's credit card numbers. 5 An NASD Hearing Panel found that Manoff violated Conduct Rule 2110, and ordered that he be barred. The NASD's National Adjudicatory Council held on appeal that the evidence "overwhelmingly" supported the Hearing Panel's findings and affirmed its decision.
We conclude that Manoff engaged in the unauthorized use of Fisher's credit card numbers when he charged the STN debt and LEAP expenses to her accounts. As a result, Manoff is subject to discipline under Conduct Rule 2110. The NASD's evidence against Manoff rested primarily on Fisher's testimony. Her testimony conflicted in significant respects with Manoff's testimony and made witness credibility a central issue in the case. The NASD found that Manoff's testimony was "riddled with discrepancies." The NASD observed that Manoff did not explain the inconsistencies in his testimony or address the testimony of either Crawford or Bradley, both of whom corroborated Fisher's testimony. The NASD concluded that Fisher was a more believable witness than Manoff and credited her version of events. We defer to the credibility findings of the NASD. The record supports them and contains no substantial contrary evidence. 6 Before us, Manoff persists in his refusal to explain or even acknowledge the many discrepancies in his testimony.
Manoff argues that Conduct Rule 2110 does not apply to his activities because his use of Fisher's account numbers was notbusiness-related. 7 As stated previously, this Rule requires associated persons to observe high standards of commercial honor and just and equitable principles of trade "in the conduct of [their] business." It is well-established that the NASD's disciplinary authority under Conduct Rule 2110 "is broad enough to encompass business-related conduct that is inconsistent with just and equitable principles of trade, even if that activity does not involve a security." 8 We also have concluded that Conduct Rule 2110 applies when the misconduct reflects on the associated person's ability to comply with the regulatory requirements of the securities business and to fulfill his fiduciary duties in handling other people's money. 9
Manoff undertook to provide professional advice to Fisher, his co-worker at his securities firm, when he offered to evaluate her finances using the LEAP program, a service that he performed for his other clients. Fisher became Manoff's client by taking the initial step in the LEAP process of submitting a completed LEAP Questionnaire along with her personal financial information, including her account numbers. 10 Manoff had a fiduciary dutyto safeguard Fisher's information and not misuse it. The LEAP Questionnaire stated that the client's financial information would be kept confidential. Manoff disregarded this confidentiality requirement and breached his fiduciary duty to Fisher when he misappropriated her account numbers and effected four charges to her credit cards. 11 We conclude that Manoff's unauthorized use of Fisher's credit card numbers constituted unethical business-related conduct, and calls into question his ability to fulfill his fiduciary duties in handling other people's money. 12
Manoff also argues that his conduct did not violate Conduct Rule 2110, asserting that the NASD ignored evidence indicating that Fisher authorized the charges to her credit cards. Manoff first points to his handwritten notes of additional amounts on the February 10 loan agreement. Manoff contends that these amounts, which correspond to the amounts charged to Fisher's credit cards, establish that the four charges were subsequent loans that were incorporated into the February 10 loan. Aside from Manoff's disputed testimony, however, the record is devoid of evidence that the notes were part of the loan or documented inFisher's presence or with her knowledge and assent. We find, as did the NASD, that the charges to Fisher's Visa accounts were not incorporated into the loan.
Manoff also notes Fisher's failure to report his conduct to state criminal authorities or her bank's fraud department. The fact that Fisher did not take such action in no way exonerates Manoff. The NASD Hearing Panel credited Fisher's testimony that she believed Manoff when he said that he had mistaken her credit card number for his wife's credit card number; that she wanted to resolve the matter informally with Manoff because they had been friends; and that she promptly informed Guardian, through Crawford, once she realized that Manoff could not pay her.
Manoff points to the testimony of former Guardian employee Larry Page, who allegedly observed Fisher faxing the LEAP forms. Manoff, however, misconstrues Page's testimony. Page testified at the hearing that he recalled seeing Fisher fax forms to LEAP. When asked if he saw Fisher faxing the specific LEAP forms at issue, Page admitted that he did not know. The NASD did not view Page's testimony as indicating that Fisher authorized Manoff's use of her credit card numbers. Nor do we.
Manoff argues that the NASD did not explain why the $2,195 seminar fee was charged to Fisher's Chevy Chase Bank Visa card, but posted to her First USA Visa card. The NASD offered an explanation for this evidentiary discrepancy. Manoff failed to show how the discrepancy would absolve him of liability under Conduct Rule 2110. The record, taken as a whole, supports the NASD's findings of violation.
Manoff finally argues that a handwriting expert should have been produced at the hearing to testify about the authenticity of Fisher's signature on the registration form for the LEAP seminar. The NASD Hearing Panel properly could compare Fisher's actual signature with her purported signature and conclude that she did not sign the form. Even under the Federal Rules of Evidence, which do not apply in NASD disciplinary actions, 13 expert testimony would not have been required on this issue. 14
The NASD recognized that Manoff's wrongdoing demonstrates a disregard for the fiduciary standards imposed on him. Manoff's excuse that the charges were the result of his having confused Fisher's credit card number with his wife's credit card number belies his assertion that he had Fisher's permission to use her credit cards. Manoff has not shown any remorse or admittedwrongdoing, and has not provided assurances against a recurrence. Neither his repayment of the funds nor his lack of a disciplinary record justifies his misuse of Fisher's credit card numbers. 15
We agree with the NASD that Manoff's continued presence in the securities industry threatens the public interest. We conclude that a bar is within the allowable sanction range under the NASD's Guidelines, 16 and is not excessive, oppressive, or unduly burdensome on competition. 17
An appropriate order will issue. 18
By the Commission (Chairman PITT and Commissioners ATKINS and CAMPOS); Commissioners GLASSMAN and GOLDSCHMID not participating.
Jonathan G. Katz
In the Matter of the Application of
DANIEL D. MANOFF
For Review of Disciplinary Action Taken by the
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
ORDER SUSTAINING DISCIPLINARY ACTION TAKEN BY NATIONAL 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 Daniel D. Manoff, and the Association's assessment of costs, be, and they hereby are, sustained.
By the Commission.
Jonathan G. Katz
1 NASD Conduct Rule 2110 provides that "[a] member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade." Under NASD Rule 0115, associated persons have the same duties and obligations as NASD members under the NASD's rules.
2 The NASD also assessed costs.
3 LEAP Systems, Inc.'s website promotes LEAP (Lifetime Economic Acceleration Process) as a system for creating financial independence and wealth protection.
4 The NASD found that Fisher's signature on the registration form had been forged, but declined to find a separate rule violation. The NASD reasoned that, while the complaint alleged that the form had been forged, this allegation was not the subject of a separate count.
5 The complaint also charged Manoff with making unauthorized transfers of a client's funds. The NASD dismissed this charge for lack of evidence.
6 Credibility determinations by a fact-finder deserve "special weight." Alderman v. SEC, 104 F.3d 285, 288 n.4 (9th Cir. 1997), aff'g, Daniel Joseph Alderman, 52 S.E.C. 366 (1995). These determinations can be overcome only when there is "substantial evidence" for doing so. Anthony Tricarico, 51 S.E.C. 457, 460 (1993).
7 Manoff argues in his application for review, but not in his brief, that Conduct Rule 2110 is overly broad and invalid. This argument has been addressed and rejected on numerous occasions. See, e.g., Kevin Lee Otto, 73 SEC Docket 964, 968 & n.10 (Sept. 15, 2000), aff'd, 253 F.3d 960 (7th Cir.), cert. denied, 112 S.Ct. 548 (2001).
8 Vail v. SEC, 101 F.3d 37, 39 (5th Cir. 1996) (per curiam), aff'g, 52 S.E.C. 339 (1995); James A. Goetz, 53 S.E.C. 472, 477-78 & n.10 (1998); Leonard John Ialeggio, 52 S.E.C. 1085, 1089 & n.15 (1996), aff'd, 185 F.3d 867 (9th Cir. 1999) (Table); Ernest A. Cipriani, Jr., 51 S.E.C. 1004, 1006 n.5 (1994); see generally Thomas E. Jackson, 45 S.E.C. 771, 772 (1975) ("Although [respondent's] wrongdoing in this instance did not involve securities, the NASD could justifiably conclude that on another occasion it might.").
9 James A. Goetz, 53 S.E.C. at 477.
10 Manoff argues that the NASD failed to explain why he would have needed to obtain Fisher's credit card numbers through the LEAP process in order to make the charges, since he already had access to her Chevy Chase Bank Visa card number from the February 10 loan agreement. The NASD explained that Manoff made charges to both the Chevy Chase Bank and First USA Visa cards. The loan agreement contained only the Chevy Chase Bank Visa card number. According to Fisher, she furnished Manoff with copies of her account statements fromboth credit cards. The NASD credited this testimony, as do we. We find that Manoff would have needed the information obtained from Fisher for the LEAP analysis to effect all of the unauthorized charges.
11 The NASD credited Fisher's testimony that the LEAP process was ongoing when the improper charges were made. We see no basis in the record on which to disagree.
12 We reject Manoff's other arguments disputing Conduct Rule 2110's applicability. For example, Manoff contends that, ultimately, Fisher did not engage his services as an investor. However, Manoff misused information that he had obtained from Fisher while undertaking to perform a professional service on her behalf analysis of her financial situation. This conduct placed Manoff within the Rule's reach. Manoff also contends that, because the February 10 loan agreement was a personal loan to pay his daughter's college tuition, the source of his duty to Fisher was a personal one, and not business-related. The February 10 loan was not the subject of any charge. Moreover, the existence of a personal relationship does not preclude a finding that Manoff's misconduct was business-related. See Mike K. Lulla, 51 S.E.C. 1036, 1039 (1994) (Commission refused to limit NASD rule that prohibited improper use of customer funds by requiring that the customer be a customer of the associated person at time of the improper use).
13 NASD Code of Procedure Rule 9145(a), NASD Manual (2000).
14 See Fed. R. Evid. 901(b)(2) (permitting nonexpert opinion concerning the genuineness of handwriting).
15 See, e.g., Henry E. Vail, 52 S.E.C. 339, 342 (1995) (rejecting repayment of funds and lack of disciplinary record as factors mitigating sanction of bar), aff'd, 101 F.3d 37 (5th Cir. 1996) (per curiam); Ernest A. Cipriani, 51 S.E.C. 1004, 1007 & n.15 (1994) (same).
16 Because there was no specific NASD Sanction Guideline that applied to the unauthorized use of credit cards, the NASD relied on the guideline for "Conversion or Improper Use of Funds or Securities." See NASD Sanction Guidelines at 34 (1998). Under this Guideline, a bar should be considered unless there are mitigating circumstances.
17 See Exchange Act Section 19(e)(2), 15 U.S.C. § 78s(e)(2).
18 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 in this opinion.
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