SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37867 / October 25, 1996 Admin. Proc. File No. 3-8958 ------------------------------------------------ : In the Matter of the Application of : : BARRY C. WILSON : 84 Overlook Terrace : Bloomfield, New Jersey : : 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 Violation of Rules of Fair Practice Failure to Provide Requested Information Where registered representative who was the financial and operations principal and general securities principal of a member firm of registered securities association failed to provide complete and timely information requested by association in connection with investigations, held, association's finding of violation and sanctions it imposed sustained. APPEARANCES: Barry C. Wilson, pro se. Alden S. Adkins and Susan L. Beesley, for NASD Regulation, Inc. Appeal filed: February 21, 1996 Last brief received: June 14, 1996 I. Barry C. Wilson, formerly both limited principal-financial and operations ("FINOP") and general securities principal of M. Rimson & Co., Inc. ("RIMS"), a member of the National Association of Securities Dealers, Inc. ("NASD"), appeals from NASD ==========================================START OF PAGE 2====== disciplinary action. -[1]- The NASD found that Wilson violated Article III, Section 1 and Article IV, Section 5 of the NASD's Rules of Fair Practice ("Rules") by failing to respond completely and timely to NASD requests for information. -[2]- The NASD censured Wilson, fined him $10,000, suspended him from association with any member for six months, and required that he requalify as a FINOP before again acting in that capacity. -[3]- Our findings are based on an independent review of the record. II. In March 1994, Suzanne Pataki, an NASD field supervisor, began a routine financial examination of RIMS. RIMS was, at that time, a self-clearing firm. The NASD staff discovered that RIMS had failed to make a "required deposit" in RIMS' so called "3-3" account and was under-capitalized. -[4]- Pataki then began ---------FOOTNOTES---------- -[1]- RIMS and Moshe Rimson, RIMS' president, sole shareholder and compliance officer, were also respondents in the proceeding below and were disciplined with respect to these, as well as other, violations. They did not appeal the NASD's disciplinary action. -[2]- The NASD recently revised and renumbered its Rules of Fair Practice; no substantive changes were made to the particular rules at issue here. Article III, Section 1 [new Rule 2110] requires a member to "observe high standards of commercial honor and just and equitable principles of trade" in conducting his business. Article IV, Section 5 [new Rule 8210], which authorizes investigations of members, requires that a person associated with a member supply information as requested by the NASD, orally or in writing, as to any matter under investigation. -[3]- The NASD also imposed costs on Wilson, jointly and severally with RIMS and Moshe Rimson. -[4]- The record refers solely to RIMS' "3-3" account. We understand this to refer to the bank account established and maintained pursuant to Securities Exchange Act Rule 15c3-3 for the exclusive benefit of firm customers to whom the broker-dealer owes money or securities. The reserve account requirement is designed to protect customer funds and the cash obtained by firms through the use of customers' securities. Its purpose is to assure (continued...) ==========================================START OF PAGE 3====== a special financial examination. RIMS was taken "off the box," i.e., not permitted to trade, for a period of time in the spring of 1994. RIMS then agreed, among other things, to enter into a clearing arrangement with a clearing broker and was allowed to resume business. Wilson performed weekly net capital computations for the firm until it began using a clearing broker in August 1994. Pataki testified that she asked for financial information from Wilson as early as February 1994 and during the course of her exam, but he produced only some of the documents. -[5]- Between August 12 and September 1, 1994, Pataki wrote four "first request" letters formally seeking the requested documents, as well as additional documents. She did not receive any response. -[6]- Between August 30 and September 16, Pataki wrote four "second request" letters. All eight of these requests were addressed to Wilson. Wilson provided partial responses to two of the "second request" letters but gave no response to any of the other requests. -[7]- Pataki testified that the ---------FOOTNOTES---------- -[4]-(...continued) that customer assets are not used to finance a firm's proprietary activities, which would subject them to the attendant business risks. -[5]- Wilson testified that Pataki was prevented from collecting documents when she was at RIMS because the files were in a room behind what Wilson terms the firm's "cage," which we understand to be a reference to the cashier's cage. -[6]- Pataki sought net capital computations for February and March 1994 with supporting documentation, certain bank statements and accounts, account information with respect to a customer maintaining a short position, complete financials for August 1994, telegraphic notices with respect to the firm's failure to maintain adequate net capital, and confirmations of amounts paid in restitution to customers in compliance with a previous settlement order between the NASD and RIMS. -[7]- Pataki testified that, in response to the September 9, 1994 "second request" for net capital computations, telegraphic notices, and confirmation of restitution payments, Wilson provided a one-page profit and loss statement for August 1994 but did not provide any telegraphic notices with respect to the firm's failure to meet (continued...) ==========================================START OF PAGE 4====== failure to furnish all of this information hindered her ability to conduct her investigation. In June 1994, Thomas Kober, a senior compliance examiner with the NASD, conducted an on-site examination at RIMS. Kober sought documents from Wilson with regard to an investigation of possible excessive markups. Kober was also not allowed access to certain RIMS files, purportedly because they were in a room behind the cage. -[8]- From June to November 1994, four letters were sent to Wilson requesting trading records, customer account information, inter-dealer trade tickets, and records relating to the receipt of stock certificates and checks. Kober testified that his office also contacted Wilson by telephone to inquire concerning why this information had not been provided after repeated requests. -[9]- At the time of his testimony in June 1995, Kober stated that he still had not received all of the documentation he had requested. -[10]- Indeed, Wilson's answer to the NASD's complaint concedes that he did not provide all of the documentation requested by Kober. Kober ---------FOOTNOTES---------- -[7]-(...continued) net capital requirements or any information with respect to restitution payments made. In response to the September 16, 1994 "second request" for complete financials (including net capital computations with supports, adjusted trial balance with supports, general ledgers, inventory position runs, and a stock record summary) as of August 31, 1994, Pataki testified that she received a package of documents that did not include either certain requested bank statements or statements of accrual and expenses to support the financial statements. -[8]- Wilson testified that he did not permit an associate of Kober's into the cage because the fidelity bond permitted only members of the firm to enter the firm's cage. -[9]- Kober stated that he directed his inquiries to Wilson because Wilson had responded to Kober's initial request for blue sheet information and was the contact person in the office. Wilson never suggested to Kober that he was not the proper person to respond on behalf of RIMS. -[10]- Kober testified that, of the items requested, he still had not received: account documents or copies of stock certificates; 17 of 98 order tickets; 73 of 82 inter-dealer comparisons; 1 of 34 retail confirmations; and 1 of 13 monthly stock records. ==========================================START OF PAGE 5====== testified that the lack of response impeded his work and prevented him from completing certain parts of his investigation. III. In his application to this Commission, Wilson argues that he made "every attempt" to comply with the NASD's requests for documents. The record, however, does not support this claim. We find that Wilson's responses to Pataki's requests violated the Rules. Wilson claimed before the NASD that he provided NASD staff with all of the files that they requested. Wilson, however, kept no log of the documents he claimed to have provided and had no evidence, other than his assertion, that he had been responsive. He also admitted that NASD staff were not allowed to collect documents because the files were in a back room behind the cage. The District Business Conduct Committee ("District Committee") found Wilson's claims that he had given all of the requested financial records to NASD examiners unpersuasive in light of contradictory testimony by NASD staff witnesses and his refusal to state categorically that he had complied with all the requests. -[11]- It is undisputed that Wilson responded late and incompletely to the document requests made by Kober. Wilson argues that the requests by Kober were not Wilson's responsibility because the investigation involved a general "compliance" claim (i.e., excessive markups) rather than his direct duties as a FINOP. Wilson, however, admitted acting as RIMS' general securities principal when Rimson was not in the office, and Wilson consistently was the contact person at RIMS during Kober's ---------FOOTNOTES---------- -[11]- The District Committee also doubted the veracity of Wilson's testimony because of the attitude evidenced in his testimony of general disregard for NASD rules and regulations. Wilson thought it was not important that he did not know the capital requirements for his firm at the time of his testimony. Moreover, Wilson did not think it was unusual that, on another occasion, he had forgotten to make a $100,000 deposit into the 15(c)(3) net capital account even though the average cash flow for RIMS was only about $80,000. The credibility determinations of the District Committee are entitled to considerable weight and deference, since they are based on hearing the witnesses' testimony and observing their demeanor. Universal Camera Corp. v. NLRB, 340 U.S. 474 (1951). ==========================================START OF PAGE 6====== investigation. Moreover, RIMS' compliance manual lists the FINOP as the person responsible for the retention, preservation, and disposition of all records. -[12]- Wilson had a duty, as a person associated with a member firm, to cooperate with the investigators and to provide them requested documentation. -[13]- Wilson's conduct with regard to Kober's investigation alone would be sufficient to uphold the sanctions imposed by the NASD. The District Committee also did not accept Wilson's attempts to blame his delayed and incomplete responses on: excessive demands on his time due to the NASD examinations, his efforts to find a clearing broker for RIMS, and the requirement that he prepare weekly net capital reports. As the District Committee found, by August 1994, his workload had eased because RIMS had obtained a clearing broker, and Wilson was no longer preparing weekly financial reports. Moreover, we do not find Wilson's contention that "he did his best" to be persuasive. -[14]- Wilson now contends that he "cried out for help from the NASD." To the extent that Wilson is suggesting that he sought assistance from the NASD, Wilson's testimony below does not support this contention. Rather, his testimony indicates that he found the NASD examiners' presence in his office disruptive and irritating and that he refused to allow them access to documents when they were on-site. On appeal, Wilson does not cite to us any evidence in the record of requests that would in any way mitigate his failure to make production. -[15]- ---------FOOTNOTES---------- -[12]- To the extent we understand Wilson's argument to be that others were responsible for compliance with NASD requests, it must be rejected. As we have held, failings on the part of certain firm personnel do not excuse misconduct by others. See, e.g., Richard R. Perkins, 51 S.E.C. 380, 384 n.19 (1993). There is no evidence, moreover, that Wilson suggested to the NASD staff that he was not the responsible person. -[13]- Article IV, Section 5 of the Rules. -[14]- Wilson was unable to specify what documents he claims to have provided or when he provided them. He also stated that he provided about 90% of what was requested of him, and he considered that level of compliance sufficient. -[15]- Wilson also makes allegations of additional misconduct on the part of Rimson and others at RIMS. If Wilson is suggesting that his "cries of (continued...) ==========================================START OF PAGE 7====== In sum, we find, as did the NASD, that Wilson violated Article III, Section 1 and Article IV, Section 5 of the Rules. IV. Wilson also advances before us several claims of bias in the proceedings. He alleges that he was prejudiced because the NASD initially considered his settlement offer jointly with an offer made by Rimson. When Rimson withdrew his offer, the NASD considered Wilson's to have been withdrawn as well. Wilson did not object to the withdrawal below, and we do not believe he can bring it up at this time to attack this proceeding. In any event, it would appear that such rejection was within the NASD's power. We have held that settlements of NASD disciplinary proceedings are governed by the NASD's Code of Procedure. -[16]- To be effective, a settlement must be accepted by order of the District Committee and submitted and approved by the National Business Conduct Committee. -[17]- The Code makes clear that, if more than one respondent submits an offer of settlement, settlements may be rejected "as to any or all" respondents submitting offers. -[18]- A rejected offer is deemed withdrawn. -[19]- Wilson also claims that he was prejudiced because he attended only one and one-half hours of the two-day hearing before the District Committee. He admitted that he voluntarily chose to attend only part of the hearing because most of the allegations concerned Rimson and RIMS. Wilson does not suggest that he would have introduced additional evidence or otherwise ---------FOOTNOTES---------- -[15]-(...continued) help" involved bringing this misconduct to the NASD's attention, these efforts do not alter our conclusion. Even if others committed misconduct, their violations do not affect Wilson's liability here. Peter Thompson Higgins, 51 S.E.C. 865, 867 (1993). -[16]- See, e.g., David L. Turnipseed, 48 S.E.C. 689, 691 (1987). -[17]- Article II, Section 11(d), (e) of Code of Procedure [new Rule 9226(d), (e)]. -[18]- Article II, Section 11(h) of Code of Procedure [new Rule 9226(h)]. -[19]- Article II, Section 11(g) of Code of Procedure [new Rule 9226(g)]. ==========================================START OF PAGE 8====== changed his defense. Wilson was not barred from attending the hearing, but rather waived his right to attend. Wilson argues that the NASD was biased against him and chose to prosecute him energetically because sanctions against Rimson, who was close to retirement, would not have any substantial impact. To the extent that he seeks to demonstrate selective prosecution, Wilson must establish that he was singled out for enforcement action while others who were similarly situated were not and that his prosecution was motivated by arbitrary or unjust considerations, such as race, religion, or the desire to prevent the exercise of a constitutionally-protected right. -[20]- Wilson has failed to establish the elements of such a claim. -[21]- Finally, Wilson appears to assert that his attorney had a conflict of interest in representing him as well as Rimson and RIMS. Wilson claims that he was forced to use this attorney because he would have had to leave his job if he had retained a separate attorney. Wilson chose to have the attorney represent him and has therefore consented to the representation. -[22]- The proper remedy for a party who believes his representation was deficient is a civil action against the attorney; the party is not entitled to a rehearing of the merits. -[23]- Moreover, we have repeatedly held that there is no constitutional or statutory right to the assistance of counsel in NASD proceedings. -[24]- ---------FOOTNOTES---------- -[20]- See United States v. Huff, 959 F.2d 731, 735 (8th Cir.), cert. denied, 506 U.S. 855 (1992); C.E. Carlson, Inc. v. SEC, 859 F.2d 1429, 1437 (10th Cir. 1988); Baltimore Gas & Elec. Co. v. Heintz, 760 F.2d 1408, 1419 (4th Cir.), cert. denied, 474 U.S. 847 (1985). -[21]- We note that Rimson was found to have engaged in additional violations, not involving Wilson. Rimson was censured, fined $20,000 and permanently barred from association with any member. -[22]- See, e.g., James L. Owsley, 51 S.E.C. 524, 538 (1993). -[23]- Link v. Wabash Railroad Co., 370 U.S. 626, 634 n.10 (1962). -[24]- In re Phyllis J. Elliott, 51 S.E.C. 991, 996 n.17 (1994); Richard R. Perkins, 51 S.E.C. 380, 386 (1993). ==========================================START OF PAGE 9====== V. Wilson argues that the sanctions imposed are too severe. He points out that he had no previous disciplinary history and that he cooperated with our staff in their investigation of RIMS. Absent subpoena power, members and associated persons must cooperate fully in providing information requested by the NASD in order for the NASD to carry out its regulatory functions. "Delay and neglect on the part of members and their associated persons undermine the ability of the NASD to conduct investigations and thereby protect the public interest." -[25]- Wilson's attitude toward the NASD investigation was lackadaisical, at best. He refused to give investigators access to documents and admits that he did not fully comply with requests for information from Kober. Failing to cooperate with the NASD is a serious violation. Under these circumstances, we are unable to conclude that the sanctions assessed by the NASD are excessive or oppressive. -[26]- An appropriate order will issue. -[27]- ---------FOOTNOTES---------- -[25]- Richard J. Rouse, 51 S.E.C. 581, 588 (1993). The facts of this case are in sharp contrast to those of Rouse, in which we found that extraordinary demands on a compliance officer served to mitigate his late responses to requests for information. In Rouse, the compliance officer remained in the firm while others were leaving and worked diligently to improve the firm's compliance procedures and its relations with regulatory authorities. -[26]- The sanctions imposed by the NASD are well within the Sanction Guidelines range. For failure to respond or to respond timely, the Guidelines provide a maximum of up to a $20,000 fine, a bar on the individual, and requalifying by examination. -[27]- 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. Wilson alludes to another proceeding that is apparently ongoing before the NASD. That proceeding is neither concluded nor before us. We have no jurisdiction at this time to review any issues with regard to that proceeding. See, Sacks (continued...) ==========================================START OF PAGE 10====== By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). Jonathan G. Katz Secretary ---------FOOTNOTES---------- -[27]-(...continued) Investment Company, Inc., 51 S.E.C. 492, 498 (1993) (where appeal not properly brought before the Commission, it has no jurisdiction over the proceeding). UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. 37867 / October 25, 1996 Admin. Proc. File No. 3-8958 : In the Matter of the Application of : : BARRY C. WILSON : 84 Overlook Terrace : Bloomfield, New Jersey : : 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 action taken by the National Association of Securities Dealers, Inc. against Barry C. Wilson, and the Association's assessment of costs, be, and they hereby are, sustained. By the Commission. Jonathan G. Katz Secretary