Gurfel v. Securities & Exchange Commission

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.

 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 peti-
tion.

I.

The National Association of Securities Dealers (NASD) is
an association of broker-dealers authorized under the Securi-
ties Exchange Act to develop and enforce rules of profession-
al 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 commis-
sions 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-

__________
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.

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 respond-
ed that the two-year period set forth in section 4 began

__________
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.

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 resigna-
tion having nothing to do with the person's conduct. There-
fore in determining which termination begins the two-year
period--the first or second--the place at which the miscon-
duct 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

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, how-
ever, 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

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 represen-
tative'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 Com-
mission 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 incor-
porated 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.