| SD
Event |
In March 2003, X was charged with a
felony in the state of Massachusetts for indecent assault and
battery on a person over 14. Massachusetts courts allow a
defendant to plead that there were sufficient facts alleged to
support the allegations against him. In making this plea, a judge
is not accepting a guilty plea nor entering a finding of
guilt. This is essentially a pre-trial diversion
program.
X did not enter a
formal guilty plea; instead, as noted above, he merely
admitted to the court sufficient facts for a guilty finding to be
entered and the judge continued
the matter without a finding ("CWOF"). The judge
ordered X to undergo three
years' supervised release, to have no contact with the
victim, and to participate in sex offender counseling. X will be
on supervised release until
March 2006.
According to Massachusetts law, if X completes this period of
supervised release without incident, the felony
charge against him will be dismissed.
| The Securities Exchange Act of
1934, Section 3(a)(39) and Art. III, Sec. 4 (g)(1) of
NASD's By-Laws state that a person is subject to a statutory
disqualification if convicted
of any felony within 10 years of the date of the
filing of an application for membership/association with an
SRO member firm.
The
Exchange Act, Section 15A(g)(2), and NASD By-Laws Art. III,
Sec. 3(d), state that a person subject to statutory
disqualification is ineligible to associate with a member firm
unless he or she obtains special relief from NASD through the
eligibility process outlined in Procedural Rules 9520 et seq.
In a letter dated November 2003, NASD's
Department of Registration and Disclosure ("Registration
and Disclosure") first informed X that as a convicted
felon, he was subject to a statutory disqualification and that
his Sponsoring Firm must promptly submit an MC-400 application
or NASD would revoke X's registration without further notice.
The Sponsoring Firm argued that X has
not been convicted of a felony and therefore it should
not have been required to submit an MC-400 application for X
to undergo NASD eligibility proceedings.
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At
the hearing, X testified that he informed the Sponsoring Firm promptly
of the felony charge and the court's action in March 2003. The
Sponsoring Firm did not update X's Uniform Application for Securities
Industry Registration or Transfer ("Form U4"), however,
until September 2003, when X sought to amend his Form U4 to add an
additional state registration. Therefore, NASD's Registration and
Disclosure was not aware of the criminal charge against X until
the Firm filed the amended Form U4. |
In an Interpretative letter dated February 21, 1992,
from Joseph M. Furey, Assistant Director, SEC Division of Market
Regulation to Bruno Lederer, NYSE Associate General Counsel
("the Lederer Letter"), the SEC considered a Maryland
criminal case that posed the question of whether an individual is
convicted when he or she pleads guilty or nolo contendere and a
judge then defers judgment and places the person on probation. In
considering this situation, the SEC determined that a
person is convicted for purposes of Section 3(a)(39) of the Exchange
Act if a judge defers judgment and puts a defendant on probation
after the judge either finds the defendant guilty or
"accepts" a plea of nolo contendere. The SEC stated
that such an individual would remain convicted until
the probation is successfully completed and the charges are
dismissed.
In an Interpretative letter dated November 9, 2000,
from Catherine McGuire, Chief Counsel, SEC Division of Market
Regulation to Peggy Germino, Manager, NYSE ("the Germino
Letter"), the SEC analyzed a California statute that permitted
first-time drug offenders to have the option of
pleading guilty, and then have the judge "defer" the entry
of judgment. If the California defendant successfully
completed the ordered treatment or program, then the court dismissed
the criminal charges against the defendant. The SEC
determined that, pursuant to the terms of this California statute,
the court did not make a
finding of guilt or accept a plea of guilty. Accordingly, the
SEC concluded that the judge effectively "set aside" the
plea pending the outcome of the probationary period and the
defendant had not been convicted.
In X's case, the court
did not accept a plea, or enter any finding, but rather held the
finding in abeyance (CWOF) pending X's successful completion of
supervised release in March 2006. If X does not violate the terms of
his supervised release program, then the felony charge is removed
from his record. Conversely, if X violates his
supervised release, then the court enters a felony conviction on his
record and X becomes statutorily disqualified and subject to NASD's
eligibility proceedings.
The NAC concluded that the Massachusetts statute at
issue with X is similar to the California statute considered by the
SEC in the Germino Letter, and therefore found that X
had not been convicted of a felony and is not subject to a statutory
disqualification. Accordingly, he may maintain his
registration with the Sponsoring Firm as an investment
company/variable contracts representative.
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