Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-01199/USCOURTS-caDC-99-01199-0/pdf.json

Parties Involved:
Eliezer Gurfel
Petitioner
Securities and Exchange Commission
Respondent

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 7, 2000 Decided March 7, 2000

No. 99-1199

Eliezer Gurfel,

Petitioner

v.

Securities and Exchange Commission,

Respondent

On Petition for Review of an Order of the

Securities and Exchange Commission

David W. O'Brien argued the cause and filed the brief for

petitioner.

Mark Pennington, Assistant General Counsel, Securities

and Exchange Commission, argued the cause for respondent.

With him on the brief were David M. Becker, Deputy General

Counsel, Jacob H. Stillman, Solicitor, and Susan K. Straus,

Attorney.

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Before: Silberman, Henderson, and Randolph, Circuit

Judges.

Opinion for the Court filed by Circuit Judge Silberman.

Silberman, Circuit Judge: Petitioner challenges an NASD

order, affirmed by the SEC, barring him from the securities

business. He asserts that under its bylaws the NASD had

lost authority to adjudicate his conduct. We deny the petition.

I.

The National Association of Securities Dealers (NASD) is

an association of broker-dealers authorized under the Securities Exchange Act to develop and enforce rules of professional conduct for its member firms, subject to oversight by the

SEC. See 15 U.S.C. s 78o-3. At the time of the misconduct

that gave rise to this case, Eliezer Gurfel was employed by

NASD member firm International Money Management

Group, Inc. (the firm). Under the terms of his employment

with the firm, Gurfel sold securities products to investors and

split the commissions--Gurfel receiving 85% of the commissions and the firm 15%. On four occasions between January

and March of 1993, Gurfel received commission checks from

ITT Hartford for his sale of the insurance company's variable

annuities. Although the checks were made out to the firm,

Gurfel deposited them in his personal bank account, evidently

by forging the endorsement of the firm's president, Chip

Brittingham, on the back of the checks.1 Gurfel did not send

the firm its 15% share of the commissions.

The firm discovered that the Hartford checks were missing.

According to unchallenged testimony during NASD enforce-

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1 Gurfel protested before the NASD and SEC that he did not

forge Brittingham's name on the checks; while he acknowledged

that he "mistakenly" deposited the checks in his personal account,

he professed ignorance as to how Brittingham's name came to be on

the back of them. Since Gurfel does not contest the SEC's factual

findings, we accept the agency's determination that Gurfel "forged

or caused to be forged" Brittingham's name on the checks.

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ment proceedings, Brittingham confronted Gurfel about the

missing commissions, and Gurfel then admitted that he had

forged Brittingham's name on the checks. Gurfel reimbursed

the firm for the funds he had converted, and "resigned" from

the firm. As is required by NASD Bylaws, Art. IV, s 3(a)

(1996),2 the firm notified the NASD that Gurfel's association

with the firm had been terminated. The notice of termination

was sent on November 15, 1993. The notice indicated that

Gurfel had violated his agreement with the firm by depositing

the checks into his personal account, but made no reference

to the forgeries. One week after his termination, Gurfel

began work at another NASD member firm, Van Sant and

Mewshaw Securities, Inc. (Van Sant). His employment there

ended about a year later, on October 31, 1994.

On November 30, 1995, the NASD's Business Conduct

Committee filed a complaint against Gurfel alleging that he

forged or caused to be forged the Hartford checks and

converted the proceeds for his personal use. While Gurfel

did claim innocence of the forgery charge, his more vigorous

defense was procedural. Article IV, Section 4 of the NASD

Bylaws, entitled "Retention of Jurisdiction," states that:

A person whose association with a member has been

terminated and is no longer associated with any member

of the [NASD] ... shall continue to be subject to the

filing of a complaint ... based upon conduct which

commenced prior to the termination ... but any such

complaint shall be filed within:

(a) two (2) years after the effective date of termination of

registration.... (emphasis added).

Gurfel argued that since no complaint was filed within two

years of the date of his termination with the firm--where he

committed the misconduct--this provision deprived the

NASD of authority to file its complaint. The NASD responded that the two-year period set forth in section 4 began

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2Article IV has since been redesignated as Article V without

substantive change. In this opinion we refer to the bylaws in effect

at the time the NASD's complaint against Gurfel was filed.

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running not when Gurfel left the firm, but when he was

terminated from Van Sant, at which point he left the industry.

Since the NASD filed its action less than two years after that

later date, the complaint was timely. The NASD's National

Adjudicatory Council rejected Gurfel's argument and barred

Gurfel from future association with any NASD member firm.

The SEC sustained both the NASD's interpretation of section

4 and the sanction. In re Gurfel, Exchange Act Release No.

41,229 (SEC Decision March 30, 1999). In his petition Gurfel

contests only the NASD's authority to bring the enforcement

action against him.

II.

His argument essentially is that section 4 must be read as

if it were analogous to a statute of limitations. The phrase

"effective date of termination of registration"--which starts

the running of the two-year period--therefore refers to his

initial termination from the firm rather than his subsequent

termination from Van Sant. That is so, it is claimed, because

the misconduct with which he is charged took place at the

firm from which he was initially terminated.

The obvious difficulty with petitioner's argument is that

section 4 does not start the running of the two-year period of

extended NASD authority from the date of any misconduct,

but rather from the date of termination. And termination

could occur for a host of reasons, including voluntary resignation having nothing to do with the person's conduct. Therefore in determining which termination begins the two-year

period--the first or second--the place at which the misconduct occurred appears irrelevant.

Petitioner attempts to tie the jurisdictional period to the

termination from the broker-dealer at which the misconduct

took place by referring to language later in section 4. A

member firm is required to amend its notice of termination in

the event that "the member learns of facts or circumstances

causing any information set forth in said notice to become

inaccurate or incomplete." See NASD By-Laws, Art. IV,

s 3(b). Section 4(a) addresses the effect of the filing of such

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a post-termination amendment on the NASD's jurisdiction,

stating that an NASD complaint must be filed within

two (2) years after the effective date of termination of

registration pursuant to Section 3 above, provided, however, that any amendment to a notice of termination filed

pursuant to Section 3(b) that is filed within two years of

the original notice which discloses that such person may

have engaged in conduct actionable under any applicable

statute, rule, or regulation shall operate to recommence

the running of the two-year period under this paragraph.

NASD Bylaws, Art. IV, s 4(a) (emphasis added). Gurfel

reads the "which" clause as referring to the original notice,

not the amendment, and that is supposed to suggest that it is

necessarily a person's misconduct-related termination that

triggers the jurisdictional period. We think that reading is

plainly wrong because as petitioner concedes there is no

necessary connection between a termination and misconduct

that took place prior to the termination. It is obvious then

that it is the amendment that is modified by the "which"

clause.

Although the language of section 4 might not pass SEC

scrutiny as an offering circular, we think the agency's reading

is correct. The "termination" which begins the running of

the two-year period, after which the NASD loses jurisdiction,

is the termination from a person's last job in the industry.

After all the section is entitled in jurisdictional terms. Its

apparent purpose is to extend coverage to any registered

representative who worked in the industry for any member

firm for two years after that person leaves the industry.

That is why the section does not even apply to a person who

is presently "associated with any member of the [NASD]."

In other words, as petitioner concedes, a person who remains

with one firm (never terminated) is subject to the NASD's

jurisdiction indefinitely. It is also clear that a person who

leaves firm A to work for B and continues working at B for,

let us say, 40 years remains subject to NASD jurisdiction for

misconduct committed at firm A--as he is still "associated

with" an NASD member. These examples show that section

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4's limitation on the NASD's authority to impose discipline on

a registered representative is not focused on--indeed, it is

indifferent to--the period of time running from the representative's misconduct. In sum, this provision merely restricts

the NASD's authority to discipline registered representatives

to a period necessary to protect the industry, not for the

purpose of granting a possible wrongdoer repose.

The SEC argues that it is entitled to deference as to the

proper interpretation of the NASD rules3 because the Commission must approve and may on its own initiative modify

the NASD Bylaws, see 15 U.S.C. s 78s(b)-(c). We think that

deference would be appropriate if we were in doubt as to the

proper interpretation of section 4, see Arkansas v. Oklahoma,

503 U.S. 91, 110-11 (1992) (deferring to EPA's interpretation

of state environmental regulatory standards the agency incorporated by reference), but we are not.

* * * *

For the reasons set forth above, we agree with the SEC's

interpretation of section 4, and deny Gurfel's petition.

So ordered.

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3 That would raise an interesting question if we were faced with

divergent interpretations from the NASD and the SEC.

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