By letter dated March 17, 2004, NASD Staff ("Staff") requested that Ryan R. Henry ("Henry"), a former 1st Discount Brokerage, Inc. registered representative, provide information by March 31, 2004, about an NASD arbitration complaint, which alleged that Henry had defrauded and breached his fiduciary duty to one of his customers. The arbitration complaint was subsequently dismissed.

• The March 17th letter was sent by certified mail, return receipt requested ("CMRRR") and by first-class mail to the residential address listed in the Central Registration Depository ("CRD") for Henry ("Henry CRD Address"), which was his mother's residence; and 
  
• The certified mail receipt was signed by Evelyn Linsenmaier (Henry's Grandmother) on March 18, 2004 and returned to NASD the following day.

The April 6th Letter

On April 6, 2004, Staff sent a second letter to the Henry CRD Address, reiterating the request for information and requiring a written response by April 20, 2004. This letter warned Henry that failure to comply with this request could subject him to disciplinary action. 

• The April 6th letter was sent by CMRRR and by first-class mail to the Henry CRD Address; and
  
• The certified mail receipt was signed for on April 7, 2004. The signature is not legible, and the signatory did not print his or her name where requested. The signer checked the box "agent," rather than "addressee." 

Notice of Intent to Suspend

Pursuant to NASD Procedural Rule 9552, on August 23, 2004, Staff sent a "Notice of Intent to Suspend" to Henry, noting his failures to respond to the  March 17 and April 6 letters and informing him that he would be suspended in all capacities if he did not take the required corrective action by September 17, 2004.

• The Notice of Intent stated that it was sent to the Henry CRD Address by Federal Express and by first-class mail. 
  
• The record does not contain a receipt that the notice was delivered to the Henry CRD Address. 
  
• NASD submitted a declaration of the person responsible for sending the Notice of Intent. She avers that
  
  • she was familiar with NASD's August 23, 2004 Notice of Intent;
    
  • at the direction of NASD's Regional Counsel, she mailed the Notice of Intent to the Henry CRD Address by first-class mail and by an overnight delivery service;
    
  • in the ordinary course of business, NASD places correspondence that is returned to NASD as undeliverable in the official file for that proceeding; and
    
  • she reviewed NASD's records and determined that "it does not contain anything indicating that the Notice of Intent to Suspend was returned to NASD as undeliverable."

Notice of Suspension

On September 23, 2004, NASD sent to Henry, at the Henry CRD Address, a Notice of Suspension From Association With Any NASD Member (“Initial Suspension Notice”). 

• The Initial Suspension Notice incorrectly stated that Henry had been suspended on August 18, 2004, instead of September 18, 2004.
  
• NASD sent this Notice to the Henry CRD Address by an overnight delivery service and by first-class mail. 
  
• The record does not contain any documentation concerning delivery information for the overnight delivery service. 
  
• The first-class envelope was returned marked in unidentified handwriting “Not At This Address” and “Return to Sender” and stamped “Returned to Sender - Attempted Not Known.”

Amended Notice of Suspension

On September 28, 2004, NASD sent to Henry, at the Henry CRD Address, an Amended Notice of Suspension From Association With Any NASD Member (“Amended Suspension Notice”). This Notice corrected the Initial Suspension Notice by stating the correct effective date of suspension as September 18, 2004. 

• NASD sent the Amended Suspension Notice to the Henry CRD Address by an overnight delivery service and by first-class mail. 
  
• The record does not contain any documentation concerning delivery information for the overnight delivery service. 
  
• The first-class envelope was returned stamped “Return to Sender” and “Returned to Sender - Not Deliverable As Addressed Unable to Forward,” with a notation in unidentified handwriting of “FOE – Not Accepted here.”

March 1, 2005 Notice of Bar

As he was notified in the suspension notices, under NASD Procedural Rule 9522(f), Henry had six months to comply with the Notice and to file a written request for termination of the suspension, and that failure to timely act would automatically bar him in all capacities. Henry failed to request the termination of his suspension within the alloted time, and on March 1, 2005, NASD advised him that effective immediately, he was barred from associating with any NASD member firm in any capacity (the "Bar Notice"). 

The Bar Notice informed Henry that he could appeal the bar to the Commission within thirty days of [his] receipt of the notice, which was sent to the Henry CRD Address by an overnight delivery service and by first-class mail. The overnight delivery receipt shows that the Bar Notice was delivered to the Henry CRD Address on March 2, 2005 by leaving it at the front door.

October 4, 2005 Appeal to SEC

On October 4, 2005, Henry appealed the NASD action to the SEC.

NASD Procedural Rule 8210:
Provision of Information and Testimony and Inspection and Copying of Books

(a) Authority of Adjudicator and Association Staff
For the purpose of an investigation, complaint, examination, or proceeding authorized by the NASD By-Laws or the Rules of the Association, an Adjudicator or Association staff shall have the right to:

(1) require a member, person associated with a member, or person subject to the Association's jurisdiction to provide information orally, in writing, or electronically (if the requested information is, or is required to be, maintained in electronic form) and to testify at a location specified by Association staff, under oath or affirmation administered by a court reporter or a notary public if requested, with respect to any matter involved in the investigation, complaint, examination, or proceeding; and. . .

...

(c) Requirement to Comply
No member or person shall fail to provide information or testimony or to permit an inspection and copying of books, records, or accounts pursuant to this Rule.

(d) Notice
A notice under this Rule shall be deemed received by the member or person to whom it is directed by mailing or otherwise transmitting the notice to the last known business address of the member or the last known residential address of the person as reflected in the Central Registration Depository. If the Adjudicator or Association staff responsible for mailing or otherwise transmitting the notice to the member or person has actual knowledge that the address in the Central Registration Depository is out of date or inaccurate, then a copy of the notice shall be mailed or otherwise transmitted to:

(1) the last known business address of the member or the last known residential address of the person as reflected in the Central Registration Depository, and
(2) any other more current address of the member or the person known to the Adjudicator or Association staff who is responsible for mailing or otherwise transmitting the notice.

...

---

NASD Procedural Rule 9552:
Failure to Provide Information or Keep Information Current

(a) Notice of Suspension of Member, Person Associated with a Member or Person Subject to NASD's Jurisdiction if Corrective Action is Not Taken
If a member, person associated with a member or person subject to NASD's jurisdiction fails to provide any information, report, material, data, or testimony requested or required to be filed pursuant to the NASD By-Laws or the NASD Rules, or fails to keep its membership application or supporting documents current, NASD staff may provide written notice to such member or person specifying the nature of the failure and stating that the failure to take corrective action within 21 days after service of the notice will result in suspension of membership or of association of the person with any member.

(b) Service of Notice of Suspension
NASD staff shall serve the member or person with such notice in accordance with Rule 9134. A copy of a notice under this Rule that is served on a person associated with a member also shall be served on such member.

(c) Contents of Notice
A notice issued under this Rule shall state the specific grounds and include the factual basis for the NASD action. The notice shall state when the NASD action will take effect and explain what the respondent must do to avoid such action. The notice shall state that the respondent may file a written request for a hearing with the Office of Hearing Officers pursuant to Rule 9559. The notice also shall inform the respondent of the applicable deadline for filing a request for a hearing and shall state that a request for a hearing must set forth with specificity any and all defenses to the NASD action. In addition, the notice shall explain that, pursuant to Rules 8310(a) and 9559(n), a Hearing Officer or, if applicable, Hearing Panel, may approve, modify or withdraw any and all sanctions or limitations imposed by the notice, and may impose any other fitting sanction.

(d) Effective Date of Suspension
The suspension referenced in a notice issued and served under this Rule shall become effective 21 days after service of the notice, unless stayed by a request for a hearing pursuant to Rule 9559.

(e) Request for Hearing
A member or person served with a notice under this Rule may file with the Office of Hearing Officers a written request for a hearing pursuant to Rule 9559. A request for a hearing shall be made before the effective date of the notice, as indicated in paragraph (d) of this Rule. A request for a hearing must set forth with specificity any and all defenses to the NASD action.

(f) Request for Termination of the Suspension
A member or person subject to a suspension pursuant to this Rule may file a written request for termination of the suspension on the ground of full compliance with the notice or decision. Such request shall be filed with the head of the NASD department or office that issued the notice or, if another NASD department or office is named as the party handling the matter on behalf of the issuing department or office, with the head of the NASD department or office that is so designated. The head of the appropriate department or office may grant relief for good cause shown.

. . .

(h) Defaults
A member or person who is suspended under this Rule and fails to request termination of the suspension within six months of issuance of the original notice of suspension will automatically be expelled or barred.

(i) Notice to Membership
NASD shall provide notice of any final NASD action taken under this Rule in the next Notice to Members Disciplinary and Other NASD Action Section.

Article V to the By-Laws of the NASD: 
Registered Representatives and Associated Persons

Section 2: Application for Registration

(c) Every application for registration filed with the NASD shall be kept current at all times by supplementary amendments via electronic process or such other process as the NASD may prescribe to the original application. Such amendment to the application shall be filed with the NASD not later than 30 days after learning of the facts or circumstances giving rise to the amendment. If such amendment involves a statutory disqualification as defined in Section 3(a)(39) and Section 15(b)(4) of the Act, such amendment shall be filed not later than ten days after such disqualification occurs.

. . .

In considering Henry's appeal, the SEC characterized his defense as essentially claiming that during the period when NASD was attempting to contact him, he had moved to a new address and, consequently "was unaware that the NASD was sending correspondence to [his] previous address." Henry cites his mother's notarized letter affirming that he had moved from the Henry CRD Address and a copy of his February 2004 telephone bill to demonstrate that he was residing at a different address.

The SEC did not agree that Henry's change of address excused his failure to respond. The SEC emphasized the importance of associated persons keeping their records current and underscored their continuing duty to notify the NASD of their current address, and to receive and read mail sent to that address. Pointedly, the SEC refused to shift the burden of keeping information current to the NASD because that could thwart an NASD investigation simply by changing one's address without notifying NASD or making arrangements to forward mail.

David I. Cassuto, 
Exchange Act Rel. 48087 (June 25, 2003), 80 SEC Docket 1775, 1779 

former registered representative who failed to comply with NASD information requests had a "responsibility to maintain a current address in the CRD . . . ."

Warren B. Minton, Jr., 
Exchange Act Rel. No. 46709 (Oct. 23, 2002), 78 SEC Docket 2369, 2375 n.15 
(quoting William T. Banning, 50 S.E.C. 415, 416 (1990)). 

Moreover, all registered representatives are required to sign and file a Form U-4 application for registration, which, among other duties, "obligates them to keep a current address on file with the NASD at all times)). 

Nazmi C. Hassanieh, 52 S.E.C. 87, 90, 90-91 n. 13 (1994). 

NASD By-Laws, Art. V, Sec. 2(c) requires that Form U-4 applications be "kept current at all times by supplementary amendments."

Rejecting defense, in failure-to-cooperate proceeding, that "NASD failed to take reasonable steps to locate" respondent by contacting his former attorney).

IN A NUTSHELL

This is truly a bizarre case.  In initially reading through the decision, you anticipate that Henry's head is on its way to the chopping block.  The NASD documented a fairly extensive number of efforts to communicate with him, and the SEC has long disfavored showing any leniency towards folks who fail to update their CRD address.  Essentially, the SEC views these cases as problems created by negligent associated persons: You made this bed; you sleep in it.

However, as you read through the facts in this case, you raise your eyebrows a number of times.  Clearly, the NASD seems to have taken far too many things for granted.  Perhaps the regulator figured that Henry had fallen off the face of the Earth and would proceed against him on a default basis.  If you don't show up, you can't complain.  Or so the logic went.  Still, the little things do add up.  There was the dead grandmother. There was the notice that an "agent" had signed for a letter and not Henry.  There were the returned-to-sender notices.  There were the NASD's missing documentation.  There was the erroneous date of suspension.

Okay, lots of little failures, but we've seen these types of miscues before.  Why does the SEC show such concern as to warrant a remand?

It seems to me that the SEC was mostly troubled by the fact that Henry had likely moved and that the grandmother may have intercepted his mail and failed to forward it.  That's one aspect.  There's also the fact that he produced a February 2004 phone bill demonstrating that he wasn't making up the date of his relocation and had likely moved at least one month before the first piece of correspondence was sent to him.

Okay . . .fine.  I've got all of that.  Still . . . I've seen all of that before.  Reggie Repp lives at 123 Main Street.  Reggie moves to 567 Main Street.  Reggie doesn't update his CRD records.  NASD enters a default bar against Reggie.  Reggie goes ballistic and appeals to the SEC.  It's unfair!  I never knew!  I didn't do anything wrong!  I didn't defraud anyone!  I just never got my mail! All of which the SEC reads and then tut-tuts poor Reggie.  The Bar is sustained.

Perhaps the SEC finally realized that it is unseemly to take away a person's career simply because he moved and didn't get his mail.  Mind you, there is no allegation by NASD that Henry engaged in sales practice violations.  The allegation is he didn't keep his CRD records in order.  Hopefully, the SEC looked askance at that allegation when NASD's own Staff seemed to have failed to adequately maintain its own records in this matter.  

Is it fair to bar someone because they didn't get their mail from the NASD?  Normally, the SEC would say "yes," which is why this case is so fascinating. In Henry, the SEC seems to be suggesting to NASD that there is some "mitigation" and, as such, maybe a suspension of up to two years would be more appropriate than a bar.  

What a colossal waste of Henry's, the NASD's, and the SEC's time and money.  In the final analysis, Henry was barred by NASD for failing to respond to an investigation into a dismissed arbitration.  Yeah, sure, he should have updated his CRD.  Okay, fine --- but that failure warrants a bar?