Securities and Exchange Commission
In the Matter of the Application of
WARREN B. MINTON, JR.
For Review of Action Taken by the
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
OPINION OF THE COMMISSION
REGISTERED SECURITIES ASSOCIATION -- REVIEW OF ASSOCIATION
ACTION DENYING MOTION TO SET ASIDE DEFAULT
Jurisdiction to Review Action of Association
Former registered representative of former member firm of registered securities association sought to set aside a default decision and obtain review of the underlying disciplinary sanctions, several years after the default was entered, on grounds that he never received the association's complaint or decision and that the sanctions imposed were excessive. Held, because the Commission lacks jurisdiction to review the association's denial of the motion to set aside default and because the Commission declines to accept petitioner's application as a late-filed appeal of the underlying disciplinary action, the application for review is dismissed.
Marvin G. Pickholz, of Hoffman, Pollok & Pickholz, and Michael Beckman, of Beckman Millman Barandes & Douglas, for Warren B. Minton.
Patrice M. Gliniecki, Alan Lawhead, and James Wrona, for NASD Regulation, Inc.
Appeal filed: October 31, 2001
Last brief received: March 1, 2002
Warren B. Minton, previously associated with Argent Securities, Inc. ("Argent"), a former member of the National Association of Securities Dealers, Inc. ("NASD"), seeks review of NASD action. In a default judgment dated January 21, 1999, an NASD hearing officer found that Minton violated NASD Procedural Rule 8210 and NASD Conduct Rule 2110. 1 The NASD censured Minton, fined him $25,000, and barred him from associating with any member firm in any capacity. Approximately 30 months later, on July 27, 2001, Minton moved the NASD to set aside its default judgment and reopen the proceeding. On September 6, 2001, an NASD hearing officer denied Minton's motion. On September 28, 2001, Minton appealed the decision but, on October 1, 2001, the NASD notified Minton that it would not accept his appeal. As discussed below, the Commission does not have jurisdiction to review this matter, and we decline to accept the application as a late-filed appeal. To the extent we make findings in this matter, we do so based on an independent review of the record.
Minton left Argent in September 1996. Before Minton's departure, two former customers had complained that Minton had made unauthorized trades in their accounts. Minton testified that, before he resigned, he informed Argent's compliance officer and legal department in writing that the complaints had no basis. 2
While Minton testified that he informed his branch manager that he was leaving Argent to seek employment outside the securities industry, Argent notified the NASD on a Uniform Termination Notice (Form U-5), dated October 4, 1996, that Argent had terminated Minton because he was "absent from [Argent's] office" and "presumed to have resigned." Minton stated that he never received a copy of the Form U-5 from Argent.
In October 1996, Minton moved from Helmetta, New Jersey, his address of record in the Central Registration Depository ("CRD"), to Spottswood, New Jersey. Minton failed to notify the CRD of his change of address. Minton stated that he did not understand that he was required to continue to update his CRD address after leaving the industry. Minton also deliberately withheld his forwarding addressfrom the Postal Service. Minton claimed that he wanted to avoid contact with his ex-wife and her attorney in connection with an acrimonious divorce.
In November 1996, the NASD began an investigation of the customer complaints against Minton. On November 27, 1996, the NASD sent by first-class mail a request for information regarding the customer complaints to Minton's CRD address in Helmetta. The letter was not returned to the NASD. On December 16, 1996, the NASD sent a second written request for information to the Helmetta address, by both first-class and certified mail. The first-class letter was not returned. The certified letter, however, was returned marked "unclaimed" with a forwarding address in Morganville, New Jersey handwritten on the envelope. 3
On December 18, 1996 (before the NASD obtained the Morganville address), the NASD sent two additional copies of its written request for information by both first-class and certified mail, to a Point Pleasant, New Jersey address that the NASD staff obtained from a consumer credit reporting company. 4 The first-class letter was not returned, but the certified letter was returned marked "unclaimed."
On January 21, 1997 and March 31, 1997, the NASD attempted to contact Minton by both first-class and certified mail at the Morganville address. Neither first-class mailing was returned to the NASD. Both certified letters were returned marked "unclaimed." 5 By October 1997, Minton had returned to Spottswood, New Jersey. In September 1998, Minton moved to Jackson, New Jersey.
Minton testified that he did not receive any of the NASD's letters. He admits that he never responded to any of the NASD's requests for information.
In October 1998, the NASD charged Minton with violations of NASD Conduct Rules 2110 and 8210 for failing to respond to the NASD's requests for information. The NASD attempted to serve the complaint by first-class and certified mail to the Helmetta, Point Pleasant, and Morganville addresses. The certified letter to the Helmetta address was returned marked "unclaimed." On November 12,1998, the NASD sent a Second Notice of Complaint by first-class and certified mail to the same addresses. The second notice sent by certified mail to Helmetta was returned marked "Forwarding Order Expired" and "Moved." The second certified mailing to Point Pleasant was returned marked "unclaimed." None of the remaining mailings was returned. Minton did not respond to the NASD's complaint.
On January 21, 1999, an NASD hearing officer found Minton to be in default. The hearing officer found that Minton had violated Rules 8210 and 2110, barred Minton from association with any NASD member firm, censured him, and imposed a $25,000 fine. Minton did not appeal or respond to that decision.
By letter dated July 27, 2001, Minton contacted the NASD, asking that the default decision be set aside. 6 Minton thereafter formally moved to vacate the NASD's default decision and reopen the case. On September 6, 2001, an NASD hearing officer denied Minton's motion to vacate the default order and reopen the proceeding. The hearing officer found that Minton failed to show "good cause" as required under the NASD's rules to set aside the default judgment. 7 The hearing officer determined that Minton was responsible for his failure to receive notice of the 1998 complaint because Minton failed to update his CRD address or to leave a forwarding address with the Postal Service. The hearing officer also expressed concern that Minton's delay had prejudiced the NASD's efforts to investigate the original customer complaints against Minton. 8 The hearing officer concluded that reopening the case would reward Minton for his negligence and "seriously undermine the requirement thatformerly registered persons update their CRD addresses, even after their registration is terminated. In turn, this would significantly weaken the NASD's ability to obtain information from formerly registered persons, which is often critical to NASD investigations . . . ."
On September 28, 2001, Minton filed a Notice of Appeal. The NASD rejected the appeal, concluding that the September 6 order denying Minton's motion to vacate was a denial of extraordinary relief and not an appealable order under the NASD's rules. Minton then filed an application for review with the Commission.
Minton asks that we review the NASD's action. As an initial matter, we do not have jurisdiction to review the NASD's denial of Minton's motion to vacate the default. Under Section 19 of the Securities Exchange Act of 1934, 9 we have the authority to review any action in which the NASD (1) imposes a final disciplinary sanction on any person; (2) denies membership or participation to any applicant; (3) prohibits or limits access to services offered by any of its members; or (4) bars any person from becoming associated with a member.
The NASD's denial of Minton's motion to set aside his default did not impose any disciplinary sanctions on Minton. Nor did it deny him membership, bar him from association, or limit his access to NASD services. 10 The NASD imposed disciplinary sanctions on Minton in its 1999 default order. When it denied Minton's motion to set aside the default, the NASD merely rejected Minton's collateral attack on the NASD's 1999 disciplinary action against him. We have previously held that, even if an applicant is adversely affected by the NASD's denial of a motion to set aside a default, that fact "does not transform the denial into a reviewable NASD order." 11
Minton asks that we treat his filing as a late appeal of the 1999 disciplinary action against him. Exchange Act Section 19(d)(2) generally provides that an aggrieved party may file for Commissionreview within thirty days of the aggrieved person's and the Commission's receiving notice of the NASD's action. Minton notes that Section 19(d)(2) allows us to accept applications for review "within such longer period as [the Commission] may determine." In Lance E. Van Alstyne, however, we rejected an April 1998 application to review a July 1997 default decision, stating that "only under extraordinary circumstances will we authorize the filing of a late appeal from an SRO action." 12
Here, we do not find extraordinary circumstances that would authorize late filing of an appeal. As in Van Alstyne, the NASD "followed its procedures and made exhaustive efforts to serve" Minton. 13 NASD Rule 8210(d) provides that an NASD request for information "shall be deemed received" when it is transmitted to the "last known residential address" as reflected in the CRD. The rule also requires that, when the NASD's staff has actual knowledge that the CRD address is inaccurate, it must send a copy to any other more current address known to the NASD. The staff identified both the Point Pleasant and Morganville addresses and mailed additional requests and complaints to those addresses. The Uniform Application for Securities Industry Registration or Transfer (Form U-4) (which Minton completed) further states that the undersigned "consent[s] that notice of any investigation or proceeding...may be given by personal service or by regular, registered, or certified mail...to applicant at his/her most recent business or home address" as reflected in the original U-4 filing or amendments to it. 14
We have previously stated that registered persons have "a continuing duty to notify the Association . . . of [their] current address, and to receive and read mail sent to [them] at that address." 15 Minton could have foreseen that the NASD mightrequest information from him in light of the customer complaints of which, he admits, he had notice. However, as Minton admits, he moved repeatedly without notifying the CRD or the Postal Service of his whereabouts. 16
Minton argues that our determination to sustain the NASD's disciplinary action in Van Alstyne was based on the NASD's having developed sufficient evidence "during the course of its investigation of Mr. Van Alstyne to charge him with substantive violations" of provisions of the NASD's rules and securities laws. However, we made clear in Van Alystyne that we declined to accept jurisdiction and therefore "[did] not consider the merits of the allegations concerning rule violations." 17
Minton notes that in David L. Turnipseed we exercised our discretion to accept an appeal that was filed twenty days late. 18We concluded in Turnipseed that, contrary to Exchange Act Section 19(e)(1), the NASD had not applied its rules "in a manner consistent with the purposes of" the Act. 19 Here, in contrast, Minton'sapplication was filed more than two-and-a-half years after the NASD's action, and as discussed above, the NASD followed rules approved by us. We find that Minton has failed to demonstrate any extraordinary circumstances that would justify accepting his application for review, and we see no reason to disturb a completed NASD disciplinary action. 20
An appropriate order will issue. 21
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
WARREN B. MINTON, JR.
For Review of Action Taken by the
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
ORDER DISMISSING APPLICATION FOR REVIEW OF DENIAL OF MOTION TO SET ASIDE DEFAULT BY REGISTERED SECURITIES ASSOCIATION
On the basis of the Commission's opinion issued this day, it is
ORDERED that the appeal of action taken by the National Association of Securities Dealers, Inc. denying the motion of Warren B. Minton to set aside a default judgment be, and it hereby is, dismissed.
By the Commission.
Jonathan G. Katz
1 NASD Procedural Rule 8210 requires registered persons to respond to NASD requests for information. Conduct Rule 2110 requires registered persons to observe high standards of commercial honor and just and equitable principles of trade.
2 A letter from Argent Securities to the NASD dated November 19, 1996 reported that Minton denied the allegations of one of the customers and had agreed to settle the matter with that customer in order to avoid potential litigation expense.
3 The record does not indicate who wrote the Morganville address on the envelope.
4 Minton testified that the Point Pleasant address was his ex-wife's residence. He stated that she did not inform him of any mailings.
5 Minton testified that, in January 1997, he leased property at the Morganville address but did not move there until April 1997. Minton stated that mail addressed to him at Morganville was frequently mis-delivered or not received at all.
6 Minton stated that he only recently had learned of the NASD's disciplinary proceedings when a friend entered Minton's name into an Internet search engine. Minton said that the friend's inquiry was prompted by Minton's consideration of a proposal to reenter the securities business.
7 NASD Procedural Rule 9269(c) provides that a party may file a motion to set aside a default for good cause shown.
8 Article V, Section 4 of the NASD Bylaws requires that "a person . . . no longer associated with any member of the NASD . . . shall continue to be subject to the filing of a complaint" for up to two years subject to certain qualifications and extensions.
During the telephonic hearing on Minton's motion, the NASD staff stated that it had received a complaint about Minton from a third customer. The staff represented that, if Minton had responded to any of the various requests for information, the staff would have been able to investigate this third complaint.
9 15 U.S.C. § 78s.
10 Lance E. Van Alstyne, 53 S.E.C. 1093, 1097 (1998) (refusal to set aside default did not impose discipline, deny membership or deny access); Russell A. Simpson, 53 S.E.C. 1042, 1046 (1998) (finding that dismissal of disciplinary action not reviewable because dismissal did not impose final disciplinary sanction); Morgan Stanley & Co., Inc., 53 S.E.C. 379, 382 (1997) (denial of exemption from automatic operation of MSRB Rule G-37 did not impose discipline because it did not impose sanction and did not deny access or membership).
11 Van Alystyne, 53 S.E.C. at 1098.
12 Id. at 1099.
14 We reject Minton's suggestion that his right to due process was violated. See Desiderio v. Nat'l Assoc. of Sec. Dealers, 191 F.3d 198, 206 (2d Cir. 1999) (dismissing due process claim because the NASD is not a state actor). Rather, the NASD is required to provide "a fair procedure for the disciplining of members and persons associated with members...." 15 U.S.C. § 78o-3(b)(8); Robert Fitzpatrick, Exchange Act Rel. No. 44956 (Oct. 19, 2001), 76 SEC Docket 252, 258, appeal pending, No. 02-4010 (2d Cir. 2002).
15 William T. Banning, 50 S.E.C. 415, 416 (1990); John H. DeGolyer, 46 S.E.C. 324, 327 (1976). Article IV, Section 1(c) of the NASD's Corporate Organization Rules states, "Each applicant and member shall ensure that its membershipapplication with the NASD is kept current at all times..." Procedural Rule 9134(b)(1) provides that "Papers served on a natural person may be served at the natural person's residential address, as reflected in the Central Registration Depository, if applicable."
16 Minton remained subject to NASD disciplinary jurisdiction for at least two years. Minton asserts that he was merely negligent because he was unaware of his obligation to keep his address current after he left the securities industry. However, ignorance of NASD requirements is not an excuse. Carter v. SEC, 726 F.2d 472, 473-74 (9th Cir. 1983) (rejecting claim that applicant was unaware of NASD prohibition against private securities sales); Richard J. Lanigan, 52 S.E.C. 375, 377 (1995) (rejecting claim that applicant was unaware of duty to update Form U-4).
17 Van Alystyne, 53 S.E.C. at 1100, n.20.
18 David L. Turnipseed, 48 S.E.C. 689, n.1 (1987).
19 In that proceeding, the NASD did not dispute Turnipseed's assertion that NASD staff had assured him that a settlement would result in a prompt resolution of the disciplinary action against him. However, nine months after Turnipseed executed a settlement offer, the NASD had not determined whether to accept it. When Turnipseed attempted to withdraw the offer and contest the allegations, the NASD refused hisrequest and instead accepted the settlement. We found that the NASD's rules did not prohibit withdrawal of settlement offers and that the NASD did not have authority to bind Turnipseed to his offer for such a lengthy period. Id. at 691.
20 "Parties to administrative proceedings have an interest in knowing when decisions are final and on which decisions their reliance may be placed." Van Alstyne, 53 S.E.C. at 1098 n.10, quoting Nequoia Association, Inc. v. U.S. Dept. of Interior, 626 F. Supp. 827, 836 (D. Utah 1985).
Minton asserts that the sanctions imposed on him will limit his opportunities outside the securities industry. There is no evidence of such collateral effects in the record. Based on the record before us, we further question whether any such collateral effects would provide the type of extraordinary circumstances that would justify reopening this proceeding.
21 We have considered all of Applicant's contentions. We have rejected or sustained these contentions to the extent that they are inconsistent or in accord with the views expressed in this opinion.
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