Markowski v. S.E.C., 1446
| Decision Date | 02 September 1994 |
| Docket Number | D,No. 1446,1446 |
| Citation | 34 F.3d 99 |
| Parties | Fed. Sec. L. Rep. P 98,381 Michael J. MARKOWSKI, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent. ocket 93-4182. |
| Court | U.S. Court of Appeals — Second Circuit |
Michael J. Markowski, pro se.
Susan S. McDonald, Washington, DC, S.E.C., for respondent.
Before NEWMAN, Chief Judge, JACOBS and LEVAL, Circuit Judges.
Petitioner Michael Markowski, pro se, petitions for judicial review pursuant to 15 U.S.C. Sec. 78y(a)(1) of an order of the Securities and Exchange Commission ("SEC") sustaining disciplinary action taken against him by the National Association of Securities Dealers, Inc. ("NASD"). These disciplinary proceedings arose from a series of confrontations in March and April 1991, between staff of the NASD and the representatives of Global America Inc. ("Global"), a member of the NASD that had ceased brokerage operations and was then winding down its business. Markowski was at that time the Chairman of Global, its Chief Executive Officer, and the majority stockholder in Global's parent company, and was himself a member of the NASD. The NASD's staff was seeking immediate on-site access at Global's offices to the books and records Global was required to prepare and maintain, pursuant to SEC Rules 17a-3 and 17a-4, with respect to the 19 securities in which Global made a market.
Following proceedings before the Market Surveillance Committee ("MSC") of the NASD and the National Business Conduct Committee ("NBCC") of the NASD, the SEC affirmed (i) the conclusion of the NBCC that Markowski had violated the NASD's Rules of Fair Practice and (ii) the disciplinary sanctions imposed by the NBCC: a fine of $50,000, a two-year suspension from association with any member firm in any capacity, and a bar on any debt or equity interest in any firm.
In his petition, Markowski contends that he fulfilled any responsibilities he had in respect of the NASD's document demand by delegating responsibility for maintaining and producing documents to a records custodian and by reasonably relying upon advice of counsel. Markowski faults the NASD for failing to locate the proper records custodian and for denying Markowski due process in connection with the hearing before the MSC. Finally Markowski claims that he is the subject of "administrative selective persecution."
Markowski was first registered with the NASD in November 1977. Global became a member in August of 1988 and Markowski registered as General Securities Principal 1 with Global in May 1989. During the time Global operated as a brokerage business, Markowski was Chairman and Chief Executive Officer, and was majority stockholder of its parent company. Net capital deficiencies compelled Global to cease operating as a brokerage business on January 16, 1991. At some point, Markowski took steps to resign as Chairman.
On March 5, 1991, members of the NASD staff arrived at the business premises of Global to conduct an unannounced, on-site inspection of books and records Global was required by the securities laws to prepare and maintain in respect of the 19 stocks of which it made a market. The NASD examiners were met at the door by Markowski's mother, a registered Global representative; Markowski was not present. Mrs. Markowski contacted her son's attorney, Martin H. Kaplan, Esq., who soon arrived at Global's offices and demanded that the examiners put down the books and records, and leave. After some further exchanges, one of Kaplan's law partners summoned the New York City police, who expelled the examiners from the premises. Later on March 5, Daniel M. Sibears, Director of the NASD's Compliance Division, spoke by telephone with Markowski who at that time was working at a securities firm called Paragon Capital Corporation ("Paragon"). In conversations with Markowski on that date, as well as on subsequent days, Sibears protested that the NASD was being denied access to Global's records. Recollections diverge as to what was said in The NASD's examiners appeared on March 6, but no one answered the door. A short while later, the staff received a letter from Mr. Kaplan, either by hand or by fax. Mr. Kaplan characterized Sibears's telephone calls to Markowski as "an effort to end run Global's position", sought to interpose an ethical impediment to further direct contact with Markowski by identifying Leonard Bloom, Esq., as counsel representing Markowski in "this matter," and offered to make Global's records available for review by the NASD staff "subject to reasonable identification of the items sought and a reasonable methodology being agreed to for said production." Kaplan solicited a prompt response to "avoid the need for further disagreement and acrimony" (probably an allusion to the police). Later that day, the examiners went to Paragon's office and delivered a letter addressed to Markowski in which Sibears requested immediate access to records. A woman on the premises accepted the letter on Markowski's behalf. The examiners looked up Markowski's home address in the NASD's federal registration depository, and tried to deliver a copy of the letter to him there, but discovered that he had not lived there for six months or more. Markowski had failed to notify the NASD of his change of address.
conversations between NASD staff and Markowski on March 5; but Markowski concedes this much: that he discussed access to the records on that date with Sibears and that he agreed to meet the examiners at Global's offices the following day to afford them access to the firm's records.
Further discussions ensued on March 7 between Sibears and Kaplan's law firm. Sibears telecopied a letter to Bloom stating that the NASD was making a final demand for access to Global's records at 2 p.m. that day. Although Bloom did not respond to the letter, one of Kaplan's colleagues telephoned Sibears and informed him that (i) Global would not provide access to its records on March 7, (ii) some of Global's records would be available for review at Kaplan's law office at 10 a.m. on March 8, and (iii) Sibears would receive a letter later in the day indicating when all of the requested records would be available and describing the "methodology" Global would follow in making the records available to the NASD. Sibears faxed a letter to Kaplan's colleague "[c]onfirming our conversation of ... this afternoon" to the effect that "[c]ertain" books and records would be available at the offices of Global's counsel the following morning, and that Global would advise as to when "all of the requested records" would be available to the NASD staff and what "methodology" Global would follow for the document production. Sibears, however, was unable to reach the examiners who were en route to Global's offices; when the examiners arrived there at 2 p.m. on March 7, they were denied access to the records. A fax from Mr. Kaplan the following morning duly noted that the NASD examiners failed to appear at Kaplan's office at the appointed time.
Over the following days, the antagonists exchanged legalistic correspondence expressing dismay and disappointment at each other's conduct, characterizing and recharacterizing each other's offers and positions, and proceeding generally at cross purposes concerning arrangements for the production of the documents. This exchange produced an impasse in which Global undertook to produce less than all of the documents at the offices of its counsel and to comply with all reasonable requests in due course, while the NASD examiners, having been denied on-site review of all records at Global's offices, demanded that all the documents be shipped immediately to Washington.
In the end, Global did not provide the NASD access to any documents until May 17, 1991, after the NASD had instituted disciplinary proceedings and obtained an order of production. Even then, Markowski produced less than all of the requested records; the rest were produced on June 5, 1991, the second day of the disciplinary hearings.
On April 9, 1991, a month after the NASD staff first arrived at Global's premises, the Anti Fraud Department of the NASD commenced disciplinary proceedings against Global and Markowski. The complaint before the Market Surveillance Committee alleged violations of Sections 17(a) and 17(b) of The disciplinary proceedings before the MSC were instituted on May 13, 1991. On the scheduled date of the hearing, Markowski did not appear; Kaplan did appear, but stated that he was not prepared to go forward and sought a continuance. The continuance was granted. On June 5, the re-scheduled hearing date, Markowski appeared with new counsel, who was also unprepared and who also sought a continuance. The second continuance was denied, and the hearing was conducted. On September 18, 1991, the MSC found that Markowski and Global had (i) violated Section 17(a) and Section 17(b) of the Exchange Act and Rule 17a-4 promulgated thereunder; (ii) failed to comply with the NASD's record-keeping requirements in Article III, Section 21, of the NASD Rules of Fair Practice; (iii) failed to submit to the examination of their books and records, as required by Article IV, Section 5 of the NASD Rules; (iv) failed to observe "high standards of commercial honor and just and equitable principles of trade", as required by Article III, Section 1 of the NASD Rules; and (v) failed to update their registrations to reflect their current addresses, as required by Article IV, Section 2(c) of the NASD By-Laws. The MSC ordered Global expelled from membership and, as to Markowski, ordered that he be fined $50,000, suspended from association with any member firm in any capacity for six (6) months, barred from association with any member in a principal capacity and barred from maintaining a debt or equity interest in any member firm.
the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78q, and Rule...
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