SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37503 / July 31, 1996 Admin. Proc. File No. 3-8927 _________________________________________________ : In the Matter of the Application of : : MICHAEL H. NOVICK : 5441 White Place : Boulder, CO 80303 : : For Review of Disciplinary Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.: ________________________________________________: OPINION OF THE COMMISSION REGISTERED SECURITIES ASSOCIATION -- REVIEW OF DISCIPLINARY PROCEEDINGS Sanctions Imposed by Association Where Commission remanded proceeding against respondent for clarification of the choice of sanctions imposed by association, held, sanctions assessed by association sustained. APPEARANCES: John D. French, of Faegre & Benson, LLP, for Michael H. Novick. T. Grant Callery and Norman Sue, Jr., for the National Association of Securities Dealers, Inc. Appeal filed: January 16, 1996 Last brief filed: April 24, 1996 I. Michael H. Novick, formerly president and controlling stockholder of M.H. Novick & Co., Inc. ( Novick & Co. or the Firm ), which was, at the time of the events underlying this proceeding, a member of the National Association of Securities Dealers, Inc. ( NASD ), again appeals from NASD disciplinary action. On remand from the Commission, the NASD affirmed the sanctions of a censure, a fine of $52,754.27, and a bar from ==========================================START OF PAGE 2====== association with any NASD member. -[1]- Our findings are based on an independent review of the record on remand. II. When this matter was appealed to us previously, we found Novick responsible for unfair markups charged by his firm in 51 retail sales of 2 securities. -[2]- While Novick admitted that unfair prices had been charged in those transactions, he denied responsibility for the transactions. We found that Novick was responsible for the Firm's pricing policy that provided that markups could be based on quotations obtained from other firms. We held that the proper measure of markups in these retail sales was the Firm s contemporaneous inter-dealer purchases. We observed that "the firm's pricing policy was such that unfair markups were an obvious risk" and that Novick s conduct violated Article III, Sections 1 and 4 of the NASD s Rules of Fair Practice ( Rules ). -[3]- We remanded the proceedings, however, to the NASD for a further explanation of the NASD's choice of sanctions. On the basis of the record before us, we were unable to evaluate fully the factors that the NASD had considered in assessing the sanctions. We noted that the sanctions differed from those imposed in a number of other recent NASD markup cases. -[4]- On remand, the NASD reaffirmed its previous imposition of sanctions, for the reasons set forth in the [District Business Conduct Committee] and [National Business Conduct Committee] decisions in this matter, and for the reasons proffered by the ---------FOOTNOTES---------- -[1]- The NASD also reaffirmed its earlier assessment of costs. -[2]- Michael H. Novick, 51 S.E.C. 1258, 1259-61 (1994). -[3]- Section 1 requires adherence to high standards of commercial honor and just and equitable principles of trade. NASD Manual (CCH) 2151. Section 4 requires that prices charged in transactions with customers be fair, taking into consideration all relevant circumstances. NASD Manual (CCH) 2154. -[4]- 51 S.E.C. at 1262. We also recognized that the NASD Sanction Guidelines state that where, among other things, there is no prior pricing misconduct, as was the case with Novick, a suspension is "typically not warranted." ==========================================START OF PAGE 3====== staff on remand. -[5]- The NASD further observed that the fine amounted to only about $1,000 per violative transaction, or about the amount of the excessive compensation identified by the [District Business Conduct Committee] and [National Business Conduct Committee] plus $25,000, and is thus hardly excessive, particularly in the absence of an order of restitution. III. ---------FOOTNOTES---------- -[5]- Before the NASD, Novick claimed that all of the sanctions imposed on him were too harsh. The NASD observed that, while the relevant Sanction Guidelines do not recommend the imposition of a bar, the Guidelines are not rules and do not prevent the NASD from imposing appropriate remedial action in response to appropriate circumstances. The NASD cited Novick s denial of responsibility, lack of remorse, and failure to provide assurances that his violative behavior would not recur. The NASD also took administrative notice of the fact that on July 31, 1995, the United States District Court for the District of Minnesota permanently enjoined Novick, pursuant to his consent, from violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. SEC v. Novick, Civil Action No. 3-93-782. The NASD took further administrative notice of the fact that, on October 24, 1995, the Commission entered, independent of the proceeding before us now, an Order Making Findings and Imposing Remedial Sanctions against Novick and Novick & Co. Securities Exchange Act Rel. No. 36408, Investment Adviser Act Rel. No. 1531 (Oct. 24, 1995), 60 SEC Docket 1678. The Order barred Novick from association in any capacity with any broker, dealer, municipal securities dealer, investment company, or investment adviser and revoked Novick & Co. s registration as an investment adviser. In addition, the NASD took administrative notice of the fact that in April 1990, Novick entered into a Consent Order with the State of Minnesota Securities Division ( Minnesota Securities Division ), based on a variety of violations. Novick agreed to resign and surrender his Minnesota securities agent license. In the same month, Novick & Co. terminated operations after the Minnesota Securities Division revoked Novick & Co. s broker dealer license and ordered the Firm s assets placed in escrow. The NASD concluded that Novick s sanctions should be sustained. ==========================================START OF PAGE 4====== In his appeal to us, Novick challenges only the fine. He submits that the fine is excessive and oppressive, considering the totality of the circumstances surrounding his alleged misconduct, the harshness of the other sanctions imposed on him, and his asserted inability to pay the fine. He also asserts that the non-monetary sanctions provide sufficient deterrence to future violations. -[6]- Novick contends that he has acknowledged his role in the excessive markups. Novick states that he understands and admits that, as president and controlling stockholder of the firm, he had executive responsibility for the firm s actions. He characterizes his misconduct, however, as one of omission, not commission. He asserts, however, that he was not the salesperson responsible for the unfair markups nor did he directly supervise those responsible. We have previously considered these contentions in our prior consideration of his appeal and rejected them. Novick has submitted additional evidence, consisting of an affidavit, dated March 7, 1996 (the "Affidavit"), updating a December 1, 1994 Statement of Financial Condition ( Financial Statement ) previously submitted to the NASD. -[7]- Rule 452 of the Commission s Rules of Practice states that a motion to adduce additional evidence shall show with particularity that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence previously. -[8]- The NASD objects to the Affidavit's introduction. The NASD contends that the Affidavit is immaterial because our remand decision did not expressly question any monetary sanctions and that the Affidavit does not materially modify the evidence previously adduced. Our earlier order addressed all the sanctions, as did the NASD's opinion on remand. Novick was unable to adduce this new evidence earlier because the Affidavit deals with Novick s current financial status. We therefore grant Novick s request to adduce the Affidavit. We note that the Affidavit states generally that Novick's financial condition has not changed substantially from the ---------FOOTNOTES---------- -[6]- In view of the fact that Novick has not challenged the bar before us, we find no reason to reconsider that sanction. See also n.5 supra. -[7]- The Financial Statement had been submitted to the NASD for consideration on remand. It does not appear to have been rejected although the NASD's opinion on remand does not comment on the Financial Statement. -[8]- 17 C.F.R.  201.452. ==========================================START OF PAGE 5====== December 1, 1994 Financial Statement, with two exceptions. Novick declares that he paid restitution to an individual in the amount of $153,000. In addition, Novick represents that he has increased his ownership of Corporate Express stock to 1,800 shares from 500 shares. -[9]- Novick does not explain how he financed these expenditures, nor does he explain why there is no resulting change to his financial condition. Novick bears the burden of demonstrating an inability to pay the fine. -[10]- On the record before us, we are unable to find that Novick has demonstrated a bona fide inability to pay. Certainly, Novick s ability to make significant restitution and to purchase securities while maintaining the same level of total assets causes us to question whether Novick is genuinely unable to pay the fine imposed by the NASD. We have repeatedly stated that the appropriate disciplinary sanction depends on the particular facts and circumstances of each case, and cannot be precisely compared with the action taken in other cases. -[11]- Under all the circumstances, we find the fine is neither excessive nor oppressive. -[12]- An appropriate order will issue. By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). ---------FOOTNOTES---------- -[9]- In 1994, Novick estimated the market value of Corporate Express to be $20 per share, less $4 per share of excise cost, less 60% due to a restrictive covenant. Novick does not state what he paid for these additional shares of Corporate Express, nor does he disclose when he purchased them. -[10]- Cf. Daniel Joseph Avant, Securities Exchange Act Rel. No. 36423 (Oct. 26, 1995), 60 SEC Docket 1723, 1729 (imposing the burden of adducing evidence concerning ability to pay an arbitration award on respondent). -[11]- See Butz v. Glover Livestock Comm n Co., Inc., 411 U.S. 182, 187 (1973); Hiller v. SEC, 429 F.2d 856, 858-59 (2d Cir. 1970). -[12]- All of the contentions 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 herein. ==========================================START OF PAGE 6====== Jonathan G. Katz Secretary SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37503 / July 31, 1996 Admin. Proc. File No. 3-8927 _________________________________________________ : In the Matter of the Application of : : MICHAEL H. NOVICK : 5441 White Place : Boulder, CO 80303 : : For Review of Disciplinary Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.: _________________________________________________: ORDER SUSTAINING DISCIPLINARY ACTION TAKEN BY REGISTERED SECURITIES ASSOCIATION On the basis of the Commission s opinion issued this day, it is ORDERED that the disciplinary sanctions of a censure, a fine of $52,754.27, and a bar from association with any member of the National Association of Securities Dealers, Inc. imposed on Michael H. Novick by the Association, and the Association s assessment of costs, be, and they hereby are, sustained. By the Commission. Jonathan G. Katz Secretary