Filed: Sep. 19, 2003
Latest Update: Feb. 22, 2020
Summary: National Association of Securities Dealers, Inc. (NASD).1, NASD Conduct Rule 2110 provides as follows:, A member, in the conduct of his business, shall, observe high standards of commercial honor and just and, equitable principles of trade.substantial evidence to support the SEC's findings.
Not for Publication in West's Federal Reporter
Citation Limited Pursuant to 1st Cir. Loc. R. 32.3
United States Court of Appeals
For the First Circuit
No. 02-1939
DAN HOWARD,
Petitioner,
v.
SECURITIES AND EXCHANGE COMMISSION,
Respondent.
ON PETITION FOR REVIEW OF AN ORDER OF THE
SECURITIES AND EXCHANGE COMMISSION
Before
Boudin, Chief Judge,
Lynch and Howard, Circuit Judges.
Dan Howard on brief pro se.
Jacob H. Stillman, Solicitor, Leslie E. Smith, Senior
Litigation Counsel, and Catherine A. Broderick, Counsel to the
Assistant General Counsel on brief for respondent.
September 19, 2003
Per Curiam. Daniel Richard Howard petitions this court
for review of an order of the Securities and Exchange Commission
("SEC") sustaining a disciplinary action taken against him by the
National Association of Securities Dealers, Inc. ("NASD"). We have
jurisdiction pursuant to 15 U.S.C. § 78y. The SEC's findings as to
the facts are conclusive if supported by substantial evidence. §
78y(4). "[This court's] function is not to independently weigh the
facts . . . . Rather, after reviewing the record considered as a
whole, including the evidence opposed to the S.E.C. view, [it is]
to determine whether substantial evidence supports the Commission's
decision." Todd & Co., Inc. v. Securities & Exchange Comm'n, 557
F.2d 1008, 1013 (3d Cir. 1977).
Following a two-day hearing, a NASD Hearing Panel
determined that Howard had violated NASD Conduct Rules 2110 and
2310, by making unsuitable recommendations for the purchase and
sale of speculative securities to an elderly customer and filing an
inaccurate Uniform Application for Securities Industry Registration
Form (Form U-4), falsely denying that he was the subject of a NASD
investigation.1 The findings were affirmed by the NASD National
1
NASD Conduct Rule 2110 provides as follows:
A member, in the conduct of his business, shall
observe high standards of commercial honor and just and
equitable principles of trade.
NASD Conduct Rule 2310 provides, in relevant part, as
follows:
(a) In recommending to a customer the purchase, sale
or exchange of any security, a member shall have
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Adjudicatory Council ("NAC") and Howard was fined $25,000 and
suspended from NASD for two years. Based upon an independent
review of the record, the SEC affirmed NASD's disciplinary action.
See In re: Daniel Richard Howard, Securities Exchange Act Rel. No.
46269, 78 SEC Docket 427, 2002 SEC Lexis 1909 (July 26, 2002). The
SEC denied Howard's motion for reconsideration and Howard
petitioned this court for review of the SEC's decision.
In his pro se brief submitted in support of his petition,
Howard focuses almost exclusively on a series of procedural claims
found by the NAC and the SEC to be entirely without merit. His
sole reference to the merits of the rule violations is as follows:
"Petitioner denies each and every allegation of unsuitability and
churning and denies falsifying his U-4." By failing to make a
developed argument, Howard has waived any objection to the SEC's
findings on the merits. See United States v. Zannino, 895 F.2d 1,
17 (1st Cir. 1990) (explaining that arguments that are undeveloped
on appeal are deemed waived).
Even if there had not been a waiver, however, there is
substantial evidence to support the SEC's findings. The SEC's
findings that Howard's recommendations to his elderly customer,
reasonable grounds for believing that the recommendation
is suitable for such customer upon the basis of the
facts, if any, disclosed by such customer as to his other
security holdings and as to his financial situation and
needs.
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John B. Meeker, were unsuitable are supported by substantial
evidence. The actual trading activity is undisputed. The
characterization of the recommended securities as "speculative" is
supported by research reports prepared by H.J. Meyers & Co., Inc.
("H.J. Meyers") (where Howard was employed as a general securities
representative during the relevant period) and by SEC filings, as
interpreted by a NASD investigator. Howard himself characterized
the Meeker account as "speculative" in his testimony at the hearing
before the NASD panel. The SEC's findings about the level of
trading activity are also supported by the record. And the case
law supports the SEC's characterization of these turnover rates and
cost-to-equity ratios as reflecting excessive trading. See In re
Peter C. Bucchieri, 52 S.E.C. 800, 805 (1996).
The record as a whole also supports the SEC's finding
that "Meeker was an elderly man in poor health whose primary need
was additional income and who sought investments that carried
minimum risk." In re Howard, 2002 SEC Lexis 1909, at *5. Given
these facts known to Howard, substantial evidence supports the
SEC's conclusion that "both the nature of the securities that
Howard recommended to Meeker and the level of trading activity were
unsuitable," in violation of NASD Conduct Rules 2110 and 2310.
Id., at *9.
Similarly, there is substantial support in the record for
the SEC's finding that Howard violated Conduct Rule 2110 by filing
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an inaccurate U-4 form and failing to amend it thereafter.
Specifically, the SEC found that Howard admitted that he had
received NASD's letter of October 15, 1998, informing him of his
obligation to disclose NASD's pending investigation in his Form U-4
when answering Question 22I. In re Howard, 2002 SEC Lexis 1909, at
*11. It further found that after Howard joined Moors & Cabot, Inc.
in October 1998, the firm filed a Form U-4 on his behalf, which
Howard signed, that gave a negative answer to Question 22I. Id.
The SEC found that "Howard did not amend his Form U-4 to correct
that misstatement."
Id. The SEC's conclusion that it was "clear
that Howard was responsible for the false statement on his Form U-
4,"
id., at *12, is supported by substantial evidence in the
record. The case law supports the conclusion that such conduct
violates "just and equitable principles of trade." See In re
Thomas R. Alton, 52 S.E.C. 380, 382 (1995); In re Robert E.
Kauffman, 51 S.E.C. 838, 839 (1993).
With respect to Howard's procedural claims, substantial
evidence in the record also supports the SEC's findings as to those
claims. For the reasons articulated by the SEC, we agree with its
conclusion that the procedural claims are without merit. Howard's
central claim in his petition to this court is that he was the
victim of selective prosecution by NASD because he is Hispanic and
"fall[s] outside t[he] preferred ethnic group" of the NASD and the
SEC. A successful selective prosecution claim would require Howard
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to show that he "'was prosecuted while others similarly situated
were not'" and "that the government's prosecution was in bad
faith." United States v. Peterson, 233 F.3d 101, 105 (1st Cir.
2000) (citation omitted). Howard identified two non-Hispanic H.J.
Meyers brokers who were investigated by NASD because of customer
complaints and as to whom NASD had determined that "no action is
warranted." This alone is not sufficient to show that the other
non-Hispanic brokers were "similarly situated" to Howard for
purposes of his selective prosecution claim. We agree with the
SEC's determination that there is insufficient support in the
record to substantiate Howard's claims that the NASD attorney
voiced racial or religious slurs and insults. The SEC's findings
that Howard's procedural claims are without merit are substantially
supported by the record.
The SEC's opinion dated July 26, 2002, sustaining the
NASD's findings of conduct rule violations and the sanctions
imposed, is affirmed.
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