==========================================START OF PAGE 1====== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 34-37070 \ April 5, 1996 Admin. Proc. File No. 3-8751 ___________________________________________________ : In the Matter of the Application of : : ROSARIO R. RUGGIERO : : 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 Where registered securities association denied firm's application to retain its membership if it continued to employ a sales representative who is subject to a statutory disqualification, held, appeal proceedings dismissed. APPEARANCES: Paul Bazil, Pickard and Djinis, for applicant. T. Grant Callery and Craig L. Landauer, for the National Association of Securities Dealers, Inc. Appeal Filed: July 14, 1995 Last Brief Filed: October 27, 1995 I. Rosario R. Ruggiero appeals from the denial by the National Association of Securities Dealers, Inc. ("NASD") of an application by Tripp & Co., Inc. ("Tripp") to remain an NASD member if it continued to employ Ruggiero. -[1]- Ruggiero is subject to a statutory disqualification by virtue of an injunction entered against him on February 28, 1995. The U.S. ---------FOOTNOTES---------- -[1]- On July 19, 1995, we denied Ruggiero's request for a stay of the NASD's order. ==========================================START OF PAGE 2====== District Court for the Southern District of New York found that Ruggiero, as a participant in a scheme to manipulate various securities, had violated Sections 17(a)(1), (2), and (3) of the Securities Act of 1933 ("Securities Act") and Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. -[2]- The District Court entered a permanent injunction against Ruggiero from further violations of these provisions, and ordered him to disgorge $72,000, which represented the commissions that he had received on his transactions in these securities, plus $67,481 in pre-judgment interest. -[3]- Our findings are based on an independent review of the record. II. From 1983 to 1985, Ruggiero was employed by Tripp. In 1985, Ruggiero became associated with E.F. Hutton & Company, Inc. ("Hutton"). The District Court found that, between July and October 1987, Ruggiero was involved in a scheme, which included Haas Securities Corporation, among others, to manipulate the prices of certain securities (the "Haas Securities"). -[4]- The District Court found that, in furtherance of the scheme, Ruggiero misrepresented to his customers the value of the Haas Securities, which he contemporaneously described as "garbage" to a Hutton branch manager. Ruggiero also effected unauthorized trades in customer accounts, and continued to effect transactions in the Haas Securities after he was ordered by Hutton not to do so. The District Court also found that Ruggiero was able to purchase through his wife's account at least one of the Haas Securities at below the then-current market price and engaged in transactions to help effectuate a "short squeeze" in that ---------FOOTNOTES---------- -[2]- SEC v. Lorin, 90 Civ. 7461 (HB), Opinion and Order. -[3]- Under Sections 3(a)(39) and 15(b)(4) of the Exchange Act, the term "statutory disqualification" includes the entry of an injunction from engaging in certain activities in connection with the purchase or sale of any security, as well as a finding that such person has willfully violated the Securities Act, the Exchange Act, or the rules thereunder. See also Article II, Sections 3(b) and 4(g) of the NASD's By-Laws, NASD Manual 1123, 1124. -[4]- The Haas Securities were Big O Tires, Inc., Cliff Engle Ltd., Digital Metcome, Inc., Fountain Powerboat Industries, Inc., Tunex International, Inc., Flores de New Mexico, Inc., and TS Industries, Inc. ==========================================START OF PAGE 3====== security. After the collapse of the scheme, Ruggiero's customers' accounts had a negative net worth of $1.8 million. In October 1987, Ruggiero left Hutton, and was briefly employed by Haas. In 1988, Ruggiero rejoined Tripp, where he is currently employed. Since rejoining Tripp, he has been supervised by Tripp's chief executive officer, Donald L. Carman. -[5]- Ruggiero and Carman have represented that 99% of Ruggiero's business has been limited to fixed income securities, including corporate, municipal, and U.S. government securities. -[6]- In November 1990, this Commission filed a complaint for injunction alleging this manipulative scheme against Ruggiero, among others. -[7]- Ruggiero contested the complaint, and trial was had on December 5, 1994. As noted above, the District Court's order was entered February 28, 1995. Ruggiero did not file an amended Uniform Application for Securities Industry Registration or Transfer ("Form U-4") disclosing the entry of the injunction. On March 23, 1995, the NASD notified Tripp of the injunction and requested that a Form U-4 be filed. No filing occurred. On May 22, 1995, the NASD instituted this proceeding. On May 31, 1995, Tripp filed an amended Form U-4 disclosing the entry of the injunction against Ruggiero. III. The standards that govern our review of this appeal are contained in Section 19(f) of the Exchange Act. If we find that "the specific grounds" on which the NASD based its actions "exist in fact," that the NASD's actions are in accordance with its rules, and that those rules were applied in a manner consistent with the purposes of the Exchange Act, we must dismiss the appeal ---------FOOTNOTES---------- -[5]- Carman has been a registered principal since 1982. He has no disciplinary history. Other than the relationship of supervisor to registered representative, the record does not suggest the existence of any relationship between Ruggiero and his proposed supervisor. -[6]- The remainder of Ruggiero's business is limited to unsolicited trades in equity securities for a single client. -[7]- See n. 2 supra. Ruggiero disclosed this complaint in an amended Uniform Application for Securities Industry Registration or Transfer ("Form U-4"), dated March 20, 1991. ==========================================START OF PAGE 4====== unless we find that the NASD's action imposes an undue burden on competition. -[8]- While Ruggiero does not deny that the basis for statutory disqualification exists, he notes that the violations that formed the basis of our injunctive complaint occurred in 1987 and while Ruggiero was not employed at Tripp. We recognize that the 1995 District Court order was based on earlier conduct. Ruggiero, however, chose to contest the proceeding, which is his right. Having determined to invoke that right, he is estopped from complaining of the delay. During the pendency of the proceeding, he was not subject to any disqualification or other disability as a result of its initiation. The proceeding is now resolved, and Ruggiero is, as a result, now subject to the disqualification. -[9]- Ruggiero also notes that we have not instituted an administrative proceeding against him. Ruggiero asserts that an administrative proceeding is "the appropriate forum to determine ---------FOOTNOTES---------- -[8]- Luther E. Oliver, Securities Exchange Act Rel. No. 33373 (December 23, 1993), 55 SEC Docket 2306, 2308; Frank J. Kochka, Securities Exchange Act Rel. No. 31792 (January 29, 1993), 53 SEC Docket 1234, 1236. -[9]- Ruggiero further asserts that, although he denied before the District Court that he participated in the manipulative scheme, he has now assumed responsibility for those violations. He notes, in this regard, that he did not appeal the District Court's order and that he has made a $10,000 payment towards the disgorgement order. Before the NASD, Ruggiero testified that he did not want to give up his career based on the testimony of the government's chief witness, who, Ruggiero claimed, "is extremely vindictive towards me and my family." Ruggiero further asserts that the District Court considered factors that do not necessarily indicate manipulation. He also argues that, at most, he was an aider and abetter to the scheme and that his liability for the alleged antifraud violations is questionable under the doctrine of Central Bank of Denver, N.A. v. First Interstate Bank of Denver, 114 S.Ct. 1439 (1994). The District Court's judgment is final, as Ruggiero concedes. We question whether either attempting to cast doubt on the validity of its determination or failing to report the entry of the judgment on his Form U-4, as discussed infra, is indicative of accepting responsibility for his previous actions. ==========================================START OF PAGE 5====== whether he should be further punished" for the conduct underlying our injunctive action. He further contends, without authority, that the sole purpose of the NASD's proceedings is to assess whether Ruggiero's continued association with Tripp "posed an immediate threat to the investing public." Article II, Section 3 of the NASD's By-Laws, among other things, prohibits the continued association of any person who becomes subject to a "disqualification," unless the NASD's Board of Governors grants relief from the disqualification. Article II, Section 4(g) of those By-Laws provides that the term "disqualification" includes an injunction "from engaging in or continuing any conduct or practice . . . in connection with the purchase or sale of a security." The NASD's rules grant it the authority to prevent, upon his disqualification, Ruggiero's continued association with Tripp. Those rules do not require the NASD to determine that Ruggiero poses an "immediate threat" to the public interest before it can act. Ruggiero further contends that his revocation is not in the public interest. Ruggiero asserts that, while employed at Tripp, his behavior was "immaculate." He and Tripp, through Carman, have represented that, from 1988 to the present, there were no complaints of any nature against Ruggiero. Ruggiero further submitted a series of letters from his customers at Tripp stating that they have found Ruggiero to be honest and trustworthy. We, however, do not find that Ruggiero's conduct was "immaculate." As indicated, he failed to file an amended Form U- 4 disclosing the entry of the injunction against him. The NASD has previously issued a Notice to Members making clear the requirement that the Form U-4 be amended within 10 days after an event creating a statutory disqualification. It has warned, moreover, that the late amendment of a Form U-4 may be grounds to denying an application to permit a statutorily disqualified person to remain associated with a member. -[10]- Although ---------FOOTNOTES---------- -[10]- NASD Notice to Members 87-65 states: If a registered person becomes subject to a statutory disqualification, this fact must be reported promptly on an amended Form U-4 . . . . The NASD Board of Governors has interpreted "promptly" to mean "within ten days of the occurrence of the disqualifying event." . . . Failure to file, or late filing of an amendment Form U- 4 . . ., may warrant disciplinary action with significant sanctions. In addition, failure to file, or failure to file in a timely manner, may be grounds (continued...) ==========================================START OF PAGE 6====== Ruggiero argues that his failure constitutes a mere technical violation, we disagree. Form U-4 is used by all the self- regulatory organizations, including the NASD, state regulators, and broker-dealers to monitor and determine the fitness of securities professionals. As we have previously stated, "The candor and forthrightness of [individuals making these filings] is critical to the effectiveness of this screening process." -[11]- ---------FOOTNOTES---------- -[10]-(...continued) to deny the application of the disqualified person to remain associated with the NASD member firm. -[11]- Thomas R. Alton, Exchange Act Rel. No. 36058 (August 4, 1995), 59 SEC Docket 2978, 2980, appeal filed, No. 70715 (9th Cir.). ==========================================START OF PAGE 7====== Ruggiero also points to Tripp's compliance efforts, which, Ruggiero asserts, are rigorous and effective. Ruggiero's sales activities are generally limited to fixed income securities. The Firm represents, among other things, that all transactions effectuated by Ruggiero will be reviewed prior to execution, and Carman, who sits near Ruggiero, will perform a daily review of the transactions. We believe, however, that the NASD was correct in questioning the rigor of Tripp's compliance procedures. Tripp failed to file an amended Form U-4 for Ruggiero, even after the NASD reminded the firm of its obligation one month later. When questioned about this failure, Carman appeared to have no knowledge that the Firm had failed to make any filing. In a subsequent submission, the firm stated that the failure was an "oversight," caused in part by a change in personnel. While we recognize that the firm has given assurances that the failure had been remedied, such a lapse gives us concern, particularly where, as Carman admitted, Ruggiero is an important producer for the firm. We are also troubled by Carman's repeated assertion that Ruggiero was a "dupe" in the manipulative scheme. The District Court's opinion is clear that Ruggiero was an active participant. In any event, it is clear that Ruggiero engaged in serious violations of the antifraud provisions of the securities laws to the detriment of his customers, among others. His conduct shows a lack of appreciation of his fiduciary duty to his customers, and caused them substantial losses. We conclude that Ruggiero and Tripp have not made an adequate showing to support Ruggiero's continued association. We accordingly conclude that the NASD applied its rules in a manner consistent with the purposes of the Exchange Act and therefore dismiss this appeal. -[12]- An appropriate order will issue. By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). Jonathan G. Katz Secretary ---------FOOTNOTES---------- -[12]- All of the contentions advanced 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. UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. 34-37070 \ April 5, 1996 Admin. Proc. File No. 3-8751 ___________________________________________________ : In the Matter of the Application of : : ROSARIO R. RUGGIERO : : For Review of Denial of a Member's : Continuance Application by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : : ___________________________________________________: ORDER DISMISSING APPEAL OF DENIAL OF MEMBER'S APPLICATION TO REGISTERED SECURITIES ASSOCIATION FOR SALES REPRESENTATIVE'S CONTINUED ASSOCIATION WITH MEMBER On the basis of the Commission's opinion issued this day, it is ORDERED that the appeal taken by Rosario R. Ruggiero from the denial by the National Association of Securities Dealers, Inc. of the application filed by Tripp & Co., Inc. to continue as a member if it retains Rosario R. Ruggiero be, and it hereby is, dismissed. By the Commission. Jonathan G. Katz Secretary