==========================================START OF PAGE 1====== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 38418 / March 19, 1997 Admin. Proc. File No. 3-9039 -------------------------------------------------- : In the Matter of the Application of : : HENRY IRVIN JUDY, JR. : 43 Santa Maria Drive : Hilton Head, South Carolina 29926 : : For Review of Disciplinary Action Taken by the : : NEW YORK STOCK EXCHANGE, INC. : : __________________________________________________: OPINION OF THE COMMISSION NATIONAL SECURITIES EXCHANGE -- REVIEW OF DISCIPLINARY PROCEEDINGS Violation of Exchange Rules Submission of False Information in Connection with Employment Application Where individual submitted false information to a member firm in connection with employment application, held, exchange's finding that such actions were inconsistent with just and equitable principles of trade and the sanctions it imposed sustained. APPEARANCES: John J. McKay, Jr., John J. McKay, Jr., P.A., for Henry Irvin Judy, Jr. Regina C. Mysliwiec, Rex W. Mixon, Jr. and Stephanie Glenn- Palmer, for the New York Stock Exchange, Inc. Appeal Filed: July 2, 1996 Last Brief Received: October 22, 1996 I. ==========================================START OF PAGE 2====== Henry Irvin Judy, Jr., formerly an account executive trainee with Dean Witter Reynolds, Inc. ("Dean Witter") and, subsequently, a job applicant with Prudential Securities Incorporated ("Prudential"), both member firms of the New York Stock Exchange ("NYSE" or "Exchange"), appeals from NYSE disciplinary action. The NYSE found that Judy engaged in conduct inconsistent with just and equitable principles of trade by submitting false information in an effort to gain employment with Prudential. 1/ The Exchange censured Judy and barred him for a period of eleven months from membership, allied membership, and approved person status, and from employment or association in any capacity with any member or member organization. Our findings are based on an independent review of the record. II. Judy was hired in April 1993 by Dean Witter's Savannah, Georgia branch office as an account executive trainee. On August 30, 1993, the branch manager of Dean Witter's Savannah office informed Judy that his employment would be terminated on September 1, 1993, because Judy had completed, submitted and supplemented a Uniform Application for Securities Industry Registration or Transfer ("Form U-4") that was inaccurate and misleading. On or about September 3, 1993, Dean Witter prepared and filed a Uniform Termination Notice for Securities Industry Registration ("Form U-5"), explaining that Judy was discharged on September 1 for "obtaining employment on basis of false or misleading information." In the weeks following his termination, Judy contacted various Dean Witter employees in an attempt to have the firm amend his Form U-5 to reflect that he voluntarily had left the firm. 2/ During this same time period Judy also sought employment as a registered representative with Prudential's Hilton Head, South Carolina branch office. Judy had several discussions with that office's branch manager, Thomas Risher. Judy disclosed to Risher that he had been discharged by Dean Witter and informed Risher that the Form U-5 filed by Dean Witter was incorrect. Risher had Judy complete a Form U-4, but informed Judy that he would be interested in pursuing Judy's employment with Prudential only if Judy had a "clean" Form U-5 -- i.e., if 1/ Exchange Rule 476(a), in part, requires persons subject to the jurisdiction of the Exchange to observe just and equitable principles of trade. 2/ Realizing that a discharge would impact adversely his efforts to obtain future employment in the securities industry, Judy also belatedly attempted to resign from Dean Witter. ==========================================START OF PAGE 3====== the form indicated that Judy resigned from Dean Witter. In late September 1993, Judy received a hand-addressed, stamped envelope bearing a handwritten Dean Witter return address. This envelope contained a Form U-5 that appeared to amend the original Form U-5. A comparison of the original and "amended" forms reveals that the latter is a crudely altered copy of the former. For instance, on the original form the reason for termination is denoted by an "X" typed in the box designated "Discharged." On the "amended" form, this typed "X" is deleted and a handwritten mark placed in the box designated "Voluntary." Also, the original form includes an explanation for the termination while the "amended" form does not -- the typed explanation having been deleted from the original form. Finally, while the original form is dated "9-03-93," the "amended" form is dated "9-13-93" -- an alteration accomplished by replacing the typed "0" with the handwritten number "1." Judy hand-delivered the "amended" Form U-5 to Risher's office. Risher then forwarded the "amended" Form U-5 to Prudential's registration department in New York. That department contacted Dean Witter about the form and was advised that Dean Witter denied amending Judy's Form U-5. Dean Witter thereafter referred the matter to the NYSE. III. Judy disputes as unsupported by a preponderance of the evidence the Exchange's finding that he applied to work for Prudential and that he knew the "amended" Form U-5 had been falsified when he provided it to Prudential. He testified that Lorena Kern, a Dean Witter employee, informed him that she would amend the Form U-5 if he provided certain information. Judy also stated in his initial brief to us that he did not know that the "amended" form at issue was false when he provided it to Prudential. 3/ Nevertheless, before the Exchange hearing panel, Risher testified that Judy sought employment with Prudential and Judy did not testify to the contrary. Helen Dachtler, another Dean Witter employee, and Kern testified that Dean Witter never amended Judy's original Form U-5. Kern also testified that she had informed Judy that the firm would not alter the Form U-5 to indicate that he had left Dean Witter voluntarily. After hearing these and other witnesses' testimony, the 3/ Judy also explicitly denied changing the original Form U-5, asserting that he would not have done so because he knew that Prudential, in performing its background check before hiring him, would contact Dean Witter. ==========================================START OF PAGE 4====== Exchange hearing panel, which deemed the testimony of the Dean Witter employees "entirely convincing," found that Judy knew that the "amended" Form U-5 was false when he provided it to Prudential while seeking employment. It is well-settled that the credibility determinations of an initial fact finder are entitled to considerable weight and deference since they are based on hearing the witnesses' testimony and observing their demeanor. 4/ We reject such determinations only where the record contains "substantial evidence" to the contrary. 5/ We find here that the record supports the hearing panel's findings. It is clear that Judy sought employment with Prudential. At various times before the hearing panel Judy and his counsel conceded that Judy sought employment with Prudential. Moreover, the record establishes that Judy executed and submitted a Form U-4 to Risher, and that Risher interviewed Judy, was given the "amended" Form U-5, and sent the document to Prudential's headquarters for processing. 6/ It also is clear that the "amended" Form U-5 did not originate with Dean Witter. Dachtler, the manager of Dean Witter's national registration department whose signature appeared on both the original and "amended" Form U-5s, testified that she did not prepare or sign, nor did she authorize another Dean Witter employee to prepare or sign her name to, the "amended" Form U-5. Kern, an associate general counsel in Dean Witter's legal department, also denied that she or any other employee of the firm amended the original Form U-5. Dachtler further testified that the "amended" Form U-5 could not have come from Dean Witter as it did not contain the verification number that normally appears on forms processed by her office and was not marked "amended," consistent with the firm's practice. Furthermore, Dachtler explained that the original Form U-5 was altered improperly as the "amended" form changed the reason for termination even though the instructions on the document do not 4/ Reynold F. Vaughan, III, 51 S.E.C. 1078, 1080 n.3 (1994) (citing Universal Camera Corp. v. NLRB, 340 U.S. 474 (1951)); Mark Foglia, 51 S.E.C. 427, 429 (1993); Jonathan Garrett Ornstein, 51 S.E.C. 135, 137 (1992). 5/ Reynold F. Vaughan, III, 51 S.E.C. at 1080 n.4; Helene R. Schwartz, 51 S.E.C. 1207, 1208 n.5 (1994). 6/ We reject Judy's claim that the hearing panel reasonably could not find Risher credible. Judy asserts that Risher "lied" during his testimony about documents he maintained relating to this matter, but this assertion lacks record support. ==========================================START OF PAGE 5====== permit such an alteration. 7/ 7/ Judy continues to assert that the "amended" Form U-5 originated with Dean Witter. Specifically, Judy alleges that Dean Witter amended the form to avoid being found liable to Judy. Judy contends that this allegation is supported by the conclusory testimony of Edward Strom, Judy's current supervisor at MFI Incorporated, who had been employed at Dean Witter a decade ago. Judy also relies upon a decision in unrelated litigation finding that Dean Witter defamed a former employee by including false information in a Form U-5. The evidence does not support Judy's contention. ==========================================START OF PAGE 6====== Additionally, the Exchange established that Judy knew that the "amended" Form U-5 had been falsified when he delivered it to Prudential. The record demonstrates that Judy spoke with Kern on numerous occasions during his attempt to have the original Form U-5 amended. Kern testified that she never informed Judy that Dean Witter would amend the original Form U-5 to reflect that he voluntarily left the firm if he provided her with certain information. According to Kern, she informed Judy that the only amendment the firm could make to the form would be to provide additional information further explaining Judy's termination. The "amended" Form U-5 was not amended in the fashion Kern described to Judy. The crude alterations made to the original document as well as the "unofficial" envelope in which the "amended" form was mailed also could not have escaped Judy's attention. Indeed, Judy's father, in whose presence Judy opened the envelope containing the "amended" Form U-5, testified before the panel that he personally had viewed the envelope and the "amended" form, and had remarked to Judy that he "[could]n't believe a company like this with a reputation they got [sic] would send something like this written in longhand." Moreover, Judy reasonably could not have believed that the "amended" Form U-5 dated September 13th originated with Dean Witter since, even under Judy's version of the facts, Kern would not have received information she needed to amend the form until at least September 23rd. Indeed, Judy and Kern spoke by telephone on a number of occasions after September 13th to discuss amending the form. Thus, we sustain the Exchange's finding that Judy knew the "amended" Form U-5 was false when he submitted it to Prudential. We also reject Judy's claim that he was prejudiced in presenting his defense because the NYSE did not produce certain documents from Prudential's files to Judy until after Risher testified. The NYSE did not use any of these documents in the presentation of its case. Notably, the Exchange had been given the documents at issue only the night before Risher testified. We find no prejudice as the panel provided Judy's counsel an opportunity to review the documents and recall Risher, yet Judy did not recall Risher or use any of the documents in his defense. In fact, Judy's counsel conceded in the hearing before the Exchange's Board of Directors that these documents "really were kind of meaningless." Based upon the foregoing, we, like the NYSE, conclude that Judy engaged in conduct inconsistent with just and equitable principles of trade by submitting false information to an ==========================================START OF PAGE 7====== Exchange member in an effort to gain employment. 8/ VI. In a business that relies heavily on candor and truthful representation, submitting a Form U-5 doctored to delete unfavorable information in order to gain employment is serious misconduct. The Form U-5 serves as a warning mechanism to firms of the potential risks and accompanying supervisory responsibilities they must assume if they decide to employ an individual with a suspect history. Thus, we do not find that, under the circumstances, the sanctions imposed by the Exchange are excessive or oppressive. An appropriate order will issue. 9/ By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). Jonathan G. Katz Secretary 8/ The NYSE's complaint charged that Judy provided false oral and written information to a member firm. While the Exchange hearing panel's decision discusses only Judy's submission of a false Form U-5 to Prudential, the hearing panel found Judy "guilty as charged." The record does not support a finding that Judy orally provided false information to Prudential. Thus, our findings relate only to Judy's submission of false written information. 9/ All of the arguments advanced by the parties have been considered. They are rejected or sustained to the extent that they are inconsistent or in accord with the views expressed in this opinion. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 38418 / March 19, 1997 Admin. Proc. File No. 3-9039 : In the Matter of the Application of : : HENRY IRVIN JUDY, JR. : 43 Santa Maria Drive : Hilton Head, South Carolina 29926 : : For Review of Disciplinary Action Taken by the : : NEW YORK STOCK EXCHANGE, INC. : : ORDER SUSTAINING DISCIPLINARY ACTION TAKEN BY NATIONAL SECURITIES EXCHANGE On the basis of the Commission's opinion issued this day, it is ORDERED that the disciplinary action taken by the New York Stock Exchange, Inc. against Henry Irvin Judy, Jr. be, and it hereby is, sustained. By the Commission. Jonathan G. Katz Secretary