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During November 1995 and February 1996, the National Association of Securities Dealers, Inc. ("NASD") sent two requests to Lance E. Van Alstyne ("Van Alstyne") to review the books and records of Merchant Banking Services, Inc. ("MBSI) and certain affiliated entities. These requests were sent by both certified and regular mail to

• Van Alstyne's residential address of record as then listed in the NASD's Central Registration Depository ("CRD address"); 
• an address that Van Alstyne had provided for his mother in Boston, Massachusetts ("Boston address"); and
• a person previously identified as Van Alstyne's attorney.

Van Alstyne failed to respond to the requests.

 KNOCK, KNOCK

In March 1997, the NASD twice requested Van Alstyne to testify and produce documents. The requests were sent by certified and regular mail to

• the CRD address;
• the Boston address; and
• an address provided by a search service ("Search address"); and
• Van Alstyne's attorney (by facsimile and regular mail).

Van Alstyne failed to respond to the requests or appear as scheduled.

The NASD drafted a Complaint, which as to Respondent Van Alstyne alleged that he was not a duly registered principal of MBSI, had offered and sold unregistered securities, and refused to respond to requests for information. In March and April 1997, the NASD sent Van Alstyne two Notices of Complaint and a Complaint by both certified and regular mail to

• the CRD address;
• the Boston address, and
• the Search address (regular mail only);
• Van Alstyne's attorney (only the Complaint and only by regular mail).

The Notices of Complaint sent to Van Alstyne's CRD address were returned by the U.S. Postal Service unopened and marked as either "unclaimed" (the first Notice of Complaint sent by certified mail) or "refused" (the first and second Notices of Complaint sent by regular mail and the second Notice of Complaint sent by certified mail). The mailings sent to the Boston and Search addresses likewise were returned. Van Alstyne never filed an Answer to the Complaint or otherwise responded to the Notices of Complaint.

On July 28, 1997, an NASD District Business Conduct Committee ("DBCC") issued a default judgment against Van Alstyne ("DBCC Decision" or "default Decision"). The DBCC deemed that Van Alstyne had received the Notices of Complaint by virtue of the mailings to his most recent CRD address of record. Similarly, as to the charges, the DBCC also determined that Van Alstyne's failure to submit an Answer constituted an admission of the allegations in the complaint.

The DBCC imposed against Van Alstyne a Censure, a $95,000 fine, and a bar from associating in any capacity with any member of the NASD.

On July 28, 1997, the NASD mailed the DBCC Decision to Van Alstyne by both regular and certified mail to his CRD address, the Boston address, and the Search address. The Decision sent by regular mail to Van Alstyne's CRD address was returned with the notations "moved" and "forwarding order expired." The decision sent by certified mail to Van Alstyne's CRD address was returned with the notation "forwarding order expired." The regular and certified mailings to the Boston and Search addresses were returned to the NASD unopened. Under NASD rules, Van Alstyne had 15 days in which to appeal the DBCC's Decision to the NASD's National Business Conduct Committee ("NBCC").

In December 1997, approximately five months after the mailing of the DBCC Decision and more than two years after the first request for his cooperation, Van Alstyne filed a motion with the NASD's National Adjudicatory Council ("NAC") to set aside the default Decision.

The NASD staff opposed Van Alstyne's motion. On March 6, 1998, the NAC denied Van Alstyne's motion to set aside the default Decision.

On April 8, 1998, Van Alstyne filed an appeal with the SEC seeking to reverse the NAC's denial of his motion to set aside the default Decision. The authority to review the actions of a self-regulatory organization ("SRO") is governed by Section 19(d) of the Securities Exchange Act of 1934 ("Exchange Act"). Under Section 19(d)(2) of the Exchange Act, an application for review to the SEC generally must be filed within 30 days after the aggrieved person has received the notice of a final NASD Decision. However, the SEC has discretion under certain circumstances to consider untimely appeals.

By way of analogy, the SEC cited cases in which it decided it lacked jurisdiction to review the NASD's denial of a motion to permit the filing of a late appeal, or where an SRO imposed no sanction

In the interests of ensuring some sense of finality to the regulatory process, the SEC commented that it would authorize the filing of a late appeal from an SRO action subject to Section 19(d)(1) "only under extraordinary circumstances."

The SEC determined that the NASD followed its procedures and made exhaustive efforts to serve Van Alstyne. The SEC was not persuaded by Van Alstyne's contention that he never actually received any NASD notices; especially since he admitted he had continuously resided at his CRD address since early 1994. Accordingly, the SEC dismissed Van Alstyne's application.

The SEC's decision in this case seems simple on the surface, but there's actually some complexity in the legal rationale. First, the SEC felt constrained by the limitations of Section 19(d), which essentially permits appeals of SRO final disciplinary actions but not necessarily appeals of denials of motions to set aside SRO default decisions. Consequently, the SEC concluded that it did not have jurisdiction to review the NAC's refusal to set aside.

Second, notwithstanding its decision on jurisdiction, the SEC decided that even if it were to consider Van Alstyne's application, it was not timely and could only be accepted as a late-filed appeal. The SEC noted the standard for accepting a late-filed appeal is a showing of extraordinary circumstances, which Van Alstyne failed to demonstrate.