Stephen Keidaish
SECURITIES EXCHANGE ACT OF 1934
Rel. No. 43555 / November 14, 2000
Admin. Proc. File No. 3-10111
In the Matter of the Application of
STEPHEN L. KEIDAISH
320 Plaza Real, #403
Boca Raton, FL 33432
For Review of Denial of a Member's
Continuance Application by the
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
Opinion of the Commission
REGISTERED SECURITIES ASSOCIATION -- REVIEW OF DENIAL OF MEMBER'S APPLICATION FOR ASSOCIATION Registered securities association denied member firm's application to retain its membership if it employed as a registered representative an individual who is subject to a statutory disqualification resulting from a felony conviction for DUI Manslaughter. Held, proceedings remanded for more complete explanation of relationship between applicant's felony conviction and denial of his application for association.
APPEARANCES:
Stephen Keidaish, pro se.
Bradford E. Ali, for NASD Regulation, Inc.
Appeal filed: December 3, 1999
Last brief received: April 4, 2000
I.
Stephen L. Keidaish appeals from the denial by the National Association of Securities Dealers, Inc. ("NASD") of an application by Orosey & Pepe Capital Markets, Inc. ("Orosey") to remain an NASD member if it employs Keidaish as a registered representative. Keidaish is subject to a statutory disqualification based on his 1994 felony conviction for DUI Manslaughter. We base our findings on an independent review of the record.
II.
In December, 1994, Keidaish pleaded guilty to DUI Manslaughter for operating a motor vehicle under the influence of alcohol resulting in the death of a passenger. The Circuit Court of Palm Beach County, Florida sentenced Keidaish to eight months in jail and fifteen years probation.1 The court later withheld the sentence and ordered Keidaish to be placed in a two-year Community Control program along with probation for fifteen years. The court required Keidaish to refrain from consuming alcohol, to obtain drug and alcohol treatment, and to participate in random drug testing. In addition, the court permanently revoked Keidaish's drivers license and ordered him to pay $2,500 in restitution to the victim's family.2 Since the conviction, Keidaish has taken an active part in the community3 and appears to have abided by the conditions of his probation.4 On June 15, 1999, Keidaish filed a motion for early termination of probation, which was denied.
The manslaughter conviction was not Keidaish's first encounter with the law. In 1993 Keidaish pleaded no contest to operating a vehicle under the influence of alcohol, a misdemeanor. The court placed Keidaish on probation for twelve months and ordered him to enroll in a substance abuse program. Charges of resisting arrest and aggravated battery on a police officer arising out of the incident were later dismissed. In 1989, a criminal charge for possession of a handgun was dismissed with Keidaish's promise to forfeit the weapon. Nineteen years before that, he pleaded guilty to concealment of merchandise, a misdemeanor, and paid a $100 fine. Lastly, in 1969, Keidaish was found guilty of felony possession of marijuana, LSD, and cocaine. He was sentenced to five years in jail, which was later suspended and changed to one-year's probation.
In September, 1998 Orosey applied to the NASD for consent to continue as an NASD member if Keidaish became an associated person.5 The firm plans to employ Keidaish as a general securities representative to be supervised by Robert L. Harvey, Executive Vice-President and Head Trader at Orosey. Orosey has been a member of the NASD since 1998 and sells mainly government bonds and mortgage-backed securities, to institutional investors. The firm has one office and employs three principals and eleven registered representatives. The NASD's Department of Member Regulation reported no customer complaints, arbitrations, or any other type of financial or securities-related regulatory actions against Harvey or Orosey.6
On November 10, 1999, the NASD Statutory Disqualification Committee held a hearing on Orosey's application for association with Keidaish. Both Keidaish and Harvey appeared at the hearing. The NASD concluded that the application for association was not in the public interest because of Keidaish's past criminal record and the fact that he was still on probation for the disqualifying crime. This appeal followed.
III.
Section 19(f) of the Securities Exchange Act of 1934 governs our review of this appeal. In particular, if we find that: (1) the specific grounds on which the NASD based its actions exist; (2) the NASD's actions are in accordance with its rules; and (3) the NASD rules were applied in a manner consistent with the purposes of the Exchange Act, we must dismiss the appeal.7
We begin our analysis by examining whether the specific grounds on which the NASD based its action exist in fact. Section 3(a)(39)(F) of the Exchange Act8 and Article III, Section 4(g)(2) of the NASD By-Laws provide that a person convicted of any felony is subject to a statutory disqualification for ten years. Keidaish's manslaughter conviction is a felony, and it occurred in 1994, six years ago. As a statutorily disqualified individual, Keidaish is no longer eligible to associate with an NASD member firm without the consent of the NASD.9 Therefore, the grounds for the NASD's denial of Orosey's application exist in fact.
We next determine whether the NASD's actions are in accordance with its rules. In his appeal, Keidaish does not dispute that the denial of the application proceeded in accordance with the NASD's rules. The NASD's rules permit it to bar a person from associating with a member when that person has been convicted of any felony in the proceeding ten years.10 The NASD conducted an eligibility hearing during which Keidaish was afforded a full and fair opportunity to be heard on his application and to demonstrate why it was consistent with the public interest to permit him to become a registered representative with Orosey.11 Accordingly, we are satisfied that the NASD's actions were in accordance with its rules.
We must also find that the NASD applied its rules in a manner consistent with the purposes of the Act. Congress amended the Exchange Act in 1990 to expand the scope of statutory disqualification to include convictions for "any felony."12 In doing so, it stated that
[t]his amendment would not automatically exclude every person convicted of a felony from the securities business. Rather, it would permit SROs, subject to Commission review, to consider the facts and circumstances surrounding a particular felony and to impose appropriate safeguards to protect the markets and investors from unreasonable risks.13
Thus, to apply its rules relative to statutory disqualification consistently with the purposes of the Act, the NASD must explain how the particular felony at issue, examined in light of circumstances relating to the felony, creates an unreasonable risk of harm to the market or investors.14
The NASD's decision, however, merely points out that Keidaish is still "serving his probation as part of his sentence for a felony conviction" and that he has a "history of problems with the law". His problems with the law are two incidents involving driving while intoxicated, and two other incidents that occurred 30 and 31 years ago, respectively. The decision does not identify what risk of harm to markets or investors arises from a conviction for DUI Manslaughter, or from two incidents that happened decades ago when Keidaish was a teenager. It does not discuss whether or how the proposed supervision of Keidaish affected the outcome. Nor does it point to any other part of the record to establish how the purposes of the Act would be furthered by a denial of Orosey's application. Without such analysis, we are unable to determine whether the NASD applied its right to deny Orosey's application consistently with the purposes of the Act or not. Therefore, we are remanding this matter to the NASD for further explanation.
In making this decision to remand, we express no view concerning the adequacy of the existing record evidence to support the NASD's decision, or any view as to the appropriate result.
In light of the foregoing considerations, we remand this appeal for further proceedings. An appropriate order will issue.15
By the Commission (Chairman LEVITT and Commissioners HUNT, CAREY, and UNGER).
Jonathan G. Katz
Secretary
Footnotes
1Circuit Court of Palm Beach County, Florida, Case No. 94-5124CFAO2 (May 16, 1994).
2The deceased passenger's family filed a wrongful death action against Keidaish and was awarded a $60,000 judgment, $50,000 of which is still outstanding. Keidaish is presently suing an insurance company and its agent, who he claims sold him insurance coverage but failed to procure him a policy, for the remainder of the wrongful death claim. The information regarding this suit and Keidaish's past criminal record prior to 1994 were provided by Keidaish himself on application forms sent to the NASD. We take no position on the accuracy of this information.
3According to his probation officer, Keidaish has been president of the Greater South County Road Association, Inc., a merchants' group, and has contributed his time to planting trees in Palm Beach. Additionally, he has helped start the "Celestine" group which meets at his home to address the spiritual issues involved in recovering from alcoholism.
4A violation of his probation was filed December 21, 1995, because of a positive drug screening for marijuana. Keidaish claimed that the positive test resulted from being at a party where others were using the controlled substance. The Court withdrew the violation and Community Control was modified to include 100 community service hours.
5In preparation for employment Keidaish passed the Series 7 General Securities Registered Representative Exam.
6The NASD issued Orosey a Letter of Caution August 20, 1998, for failure to register as a Fixed Income Pricing System (FIPS) participant and for failure to report four transactions in FIPS reportable securities. According to NASD records, Orosey corrected this oversight.
7Section 19(f) of the Exchange Act, 15 U.S.C. § 78s(f). See, e.g., William J. Haberman, Exchange Act Rel. No. 40673 (November 12, 1998), 68 SEC Docket, 1527, 1530. In addition, we must find that the NASD's action imposes no undue burden on competition. Keidaish does not claim, and the record does not show, that the NASD's action has imposed an undue burden on competition. See Imaging Diagnostic Systems, Inc., Exchange Act Rel. No. 3-9624 (July 21, 1999), 70 SEC Docket 339, 342.
815 U.S.C. § 78c(a)(39)(F).
9Under Article III, Section 3(d) of the NASD By-Laws, an ineligible applicant may request relief from the ineligibility pursuant to the Rules of Association.
10Article III, Section 4(g)(2) of the NASD By-Laws.
11See Article III , Section 3(d) of the NASD By-Laws (The NASD "may conduct such inquiry or investigation into the relevant facts and circumstances as it, in its discretion, considers necessary to its determination" whether to approve the membership continuance application). See also NASD Code of Procedure Rules 9520 - 9525 (eligibility proceedings).
12Act of November 15, 1990, Pub. L. No. 101-550, Title II §§ 203(b)(6), 104 Stat. 2713, 2717-2718 (codified at Section 3(a)(39)(F) of the Exchange Act, 15 U.S.C. § 78c(a)(39)(F)). The NASD amended its By-Laws in 1997 to incorporate this change. See Article III, Section 4(g)(2) of the NASD By-Laws.
13H.R. Rep. No. 101-240, at 40 (1989).
14We note that some courts have held that where a felony conviction results in an automatic bar from an occupation, such bar is unconstitutional. See, e.g., Schware v. Board of Bar Examiners, 353 U.S. 232, at 239 (1957) (the Supreme Court held that for occupational licensing all "qualifications must have a rational connection with the applicant's fitness or capacity" to perform the job); and Smith v. Fussenich, 440 F.Supp. 1077 (D.Conn. 1977) (federal court overturned a state law automatically barring convicted felons from serving as private detectives on the grounds that it violated the equal protection clause of the constitution).
15We 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.
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Rel. No. 43555 / November 14, 2000
Admin. Proc. File No. 3-10111
In the Matter of the Application of
STEPHEN L. KEIDAISH
320 Plaza Real, #403
Boca Raton, FL 33432
For Review of Denial of a Member's
Continuance Application by the
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.
ORDER REMANDING PROCEEDING TO NATIONAL ASSOCIATION OF SECURITIES DEALERS
On the basis of the Commission's opinion issued this day, it is
ORDERED that this proceeding be, and it hereby is, remanded to the National Association of Securities Dealers, Inc., for further action in accordance with such opinion.
By the Commission.
Jonathan G. Katz
Secretary