==========================================START OF PAGE 1====== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 34-37074 \ April 5, 1996 Admin. Proc. File No. 3-8697 _________________________________________________ : In the Matter of the Application of : : RONALD H. V. JUSTISS : 1445 S. Elm : Denver, Colorado 80222 : : For Review of Disciplinary Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : _________________________________________________: OPINION OF THE COMMISSION REGISTERED SECURITIES ASSOCIATION -- REVIEW OF DISCIPLINARY PROCEEDINGS Violation of Rules of Fair Practice Conduct Inconsistent with Just and Equitable Principles of Trade Where registered representative of member firm brought unauthorized material into the testing center and then reviewed it while taking a qualification examination, held, association's findings of violation and sanctions sustained. APPEARANCES: Stephen L. Waters, of Robinson, Waters, O'Dorisio & Rapson, P.C., for Ronald H. V. Justiss. T. Grant Callery and Norman Sue, Jr., for the National Association of Securities Dealers, Inc. Appeal filed: May 16, 1995 Last brief received: August 18, 1995 I. Ronald H. V. Justiss, a registered representative with D.E. Frey and Co., Inc., a member firm of the National Association of Securities Dealers, Inc. ("NASD" or the "Association"), appeals ==========================================START OF PAGE 2====== from NASD disciplinary action. The NASD found that Justiss brought unauthorized material into an NASD testing center and then reviewed it while taking a qualification examination. The NASD concluded that this conduct contravened Schedule C, Part VII(4) of the Association's By-Laws and thus violated Article III, Section 1 of its Rules of Fair Practice (the "Rules"). -[1]- The NASD censured Justiss and barred him in all capacities. -[2]- Our findings are based on an independent review of the record. II. On October 26, 1993, Ronald Justiss reported to an NASD testing center in Denver, Colorado for a Series 65 qualification examination. At the outset of the examination, which was given on computer, proctor Cristy Clearwater advised Justiss that notes and study materials were not allowed inside the testing area. -[3]- A similar warning was printed prominently at the top of the pink scratch paper Clearwater gave Justiss before testing commenced and which Justiss used during the examination. -[4]- Justiss also had to certify that he would not receive any unauthorized assistance before he could begin working on the examination. -[5]- ---------FOOTNOTES---------- -[1]- Schedule C, Part VII(4) prohibits an individual from receiving assistance while taking an NASD qualification examination. Article III, Section 1 requires adherence to "high standards of commercial honor and just and equitable principles of trade." -[2]-The NASD also assessed costs. -[3]- That he could not make use of unauthorized material during an NASD examination would have come as no surprise to Justiss: he also had sat twice for both the Series 7 and Series 63 examinations, passing each on the second try by a slim margin. -[4]- This warning appeared on each sheet of scratch paper: "This is a closed book test. Only materials issued or approved by the center staff may be taken into the testing area." -[5]- At the outset of the examination, a statement appeared on the computer terminal which read, in pertinent part: "I certify that I will take this examination in the prescribed fashion and will neither receive nor give assistance of any nature (continued...) ==========================================START OF PAGE 3====== About halfway through the two-hour examination, Clearwater, who was standing behind a nearby work station, observed Justiss holding up the corner of his pink scratch paper and reading from two small white cards that were underneath the scratch paper. As she continued to watch Justiss, Clearwater saw him look from the white cards to the exam question displayed on his computer screen. She then saw Justiss look back down again at the white cards. As Clearwater approached Justiss' work station, Justiss dropped the corner of the scratch paper and placed his hand over it. Upon reaching Justiss' work station, Clearwater lifted up the scratch paper and exposed two small notecards. After advising Justiss that the use of notes during the examination was prohibited, Clearwater confiscated the notecards. In accordance with test center procedures, Clearwater went immediately to an administrative computer terminal to check the status of Justiss' exam. She determined from her review that Justiss was working on Question 52, which asked which of the four securities listed was subject to the registration requirements of the Uniform Securities Act. The notes taken from Justiss, which were handwritten on the back of two of his business cards, contained information relating to the definition of a security and to categories of exempt securities and exempt transactions. At the end of the examination, -[6]- Clearwater informed Justiss that she would have to file a report on what had happened. Justiss asked what the outcome would be and whether he would be required to retake the examination. When Clearwater advised him that she did not know, Justiss replied, "Well, I'm not worried about it," and left the test center. The NASD credited Clearwater's testimony before the hearing panel regarding these observations, finding it to be very clear and specific. Justiss, who also testified, did not contest the accuracy of Clearwater's observations and, indeed, advised the hearing panel that he probably would have reached the same ---------FOOTNOTES---------- -[5]-(...continued) while taking the examination." The statement also warned that severe penalties could be imposed for any activity inconsistent with the purpose of the examination. Justiss had to indicate affirmatively his agreement with this statement in order to access the questions and proceed with the examination. -[6]- After confiscating the two notecards, Clearwater contacted an NASD field support services representative, who advised her to allow Justiss to finish the examination. ==========================================START OF PAGE 4====== conclusion -- that he had cheated on the examination -- had he been in Clearwater's position. Justiss' version of events, however, was that he routinely prepared notecards on material he was not "particularly comfortable with" for use as study aids. Justiss acknowledged that he had two such notecards in his possession during the examination, -[7]- but he claimed that he inadvertently had brought them into the testing area -[8]- and did not realize they were under his scratch paper until just before Clearwater seized them. -[9]- He asserted that he did not review the notes during the examination and that, in any event, he would have been unable to read the small print on the notecards without his glasses. -[10]- III. ---------FOOTNOTES---------- -[7]- Justiss testified that he prepared these notecards on the morning of the examination. -[8]- Justiss testified that he was studying the notecards in the anteroom to the testing area before the examination began and, without realizing it, brought them into the testing area with his appointment calendar. He said that he put his calendar on the desk, and that when he later moved it to the floor, the notes were left behind on the desk. He claimed he did not see the notes at that time because, while bending down to put the calendar on the floor, he "simultaneously" moved the pink scratch paper on the desk, thus covering up the notes. -[9]- Justiss claimed that he discovered the notecards during the examination when he "unconsciously" moved or picked up the scratch paper. -[10]- Justiss testified that he had forgotten to bring his glasses to the examination. While he made no reference to his need for glasses in either his handwritten version of events prepared for NASD staff before the complaint issued, or in his answer to the complaint, Justiss told the hearing panel that it is "virtually impossible" for him to read without his glasses. He further explained, however, that he could see the computer screen without his glasses and that he had been able to study the notecards in the anteroom to the testing area by holding the cards at a distance. ==========================================START OF PAGE 5====== It is clear that possession of unauthorized material during a qualification examination violates NASD rules. -[11]- Here, Justiss not only brought unauthorized material with him into the testing area, but he was observed referring to it while working on an exam question, the subject matter of which related directly to the content of that material. We reject Justiss' claim that the record does not show he used, or intended to use, the two unauthorized notecards during the examination. Clearwater testified that, from her vantage point near Justiss' work station, she plainly could see Justiss refer to the notecards while working on the examination. -[12]- Having heard conflicting testimony from Clearwater and Justiss, the District Business Conduct Committee (the "District Committee") credited Clearwater's account, and we see no basis to question that assessment. -[13]- Accordingly, we, like the NASD, find that Justiss brought unauthorized material into an NASD testing center and then reviewed it while taking a qualification examination, in violation of Article III, Section 1. ---------FOOTNOTES---------- -[11]-E.g., Helene R. Schwartz, 51 S.E.C. 1207 (1994). -[12]- During her testimony, Clearwater stated that she had no doubt that Justiss was reviewing the unauthorized notecards while taking the examination. She stated: [I]t wasn't that he inadvertently saw them [the notecards] and happened to think . . . that he shouldn't have them there; he was actually reading them and referring to the screen and referring back to the notes . . . [H]e made no attempt to put the notes down on the floor or in his pocket or in any way attempt not to use them. And I felt he was trying to conceal them from me by covering them with scratch paper, again with his hand, when I came around. I have no doubt in my mind that he was using them to assist him in the exam. -[13]- The credibility determination of an initial fact- finder is entitled to considerable weight and deference, since it is based on hearing the witnesses' testimony and observing their demeanor. E.g., Jonathan Garrett Ornstein, 51 S.E.C. 135, 137 (1992) (citing Universal Camera Corp. v. NLRB, 340 U.S. 474 (1951)). Only where the record contains "substantial evidence" to the contrary will we reject such a determination. Schwartz, 51 S.E.C. at 1208 n.5. ==========================================START OF PAGE 6====== IV. In his appeal to us, Justiss focuses on his claim that the sanction imposed by the NASD is excessive. The District Committee had censured Justiss and barred him in all capacities with the right to reapply after one year. -[14]- Justiss appealed the sanction to the National Business Conduct Committee (the "National Committee"), which also had called the case for review. On its review, the National Committee increased the sanction to a bar in all capacities. -[15]- Justiss claims that a bar in all capacities is not warranted because he did not intend to cheat on the examination, did not review the unauthorized material during the exam, and indeed could not have reviewed it without his glasses. As we have indicated, however, these assertions are not supported by the record. -[16]- Nor can we agree with Justiss' assertion that his situation is analogous to that at issue in Helene R. Schwartz. -[17]- ---------FOOTNOTES---------- -[14]- The District Committee declined to impose a permanent bar, as it believed, based on testimony regarding Justiss' character and his efforts in the community, that Justiss could be a good role model in the securities industry. -[15]- The National Committee's authority to increase the sanctions imposed by the District Committee is set forth in Article III, Section 3 of the NASD Code of Procedure. -[16]- Regardless of whether Justiss in fact was able to read the contents of the notecards without his glasses, the record establishes that he was attempting to do so at the time the proctor observed him. -[17]- Stating that Schwartz was not observed using notes protruding from her calculator case in any way, and that the notes did not appear to have been prepared with a predetermined intent to cheat on the exam, the District Committee initially censured Schwartz and imposed a fine. After calling the case up for its review, the National Committee eliminated the fine and imposed a bar. On appeal, we reduced the bar to a 30-day suspension. Schwartz, 51 S.E.C. at 1209. (continued...) ==========================================START OF PAGE 7====== As we already have stated, the misconduct here involved much more than possession of unauthorized materials -- the sole charge at issue in Schwartz. Justiss attempted to conceal the prohibited notecards under his scratch paper; the proctor observed him reviewing the notecards while working on the examination; and the material on the notecards was directly relevant to the question on which he was working. Justiss attempts to minimize the seriousness of his misconduct by characterizing it as, "at most, a gross error in judgment." He also cites certain assertedly mitigating factors in support of a lesser sanction, including that the violation was "one isolated incident" of wrongdoing; he has no prior disciplinary history -[18]-; and he is well-regarded in the community. On the contrary, under all the circumstances, we find a bar to be warranted by Justiss' misconduct. While the misconduct did not involve direct harm to customers, it flouts the ethical standards to which members of this industry must adhere. Such behavior, moreover, threatens the integrity of the NASD's registration process and cannot be countenanced. An appropriate order will issue. -[19]- By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). Jonathan G. Katz Secretary ---------FOOTNOTES---------- -[17]-(...continued) Acknowledging that his misconduct was "more than [the] negligence" found in Schwartz, Justiss concedes that his sanction should be greater than the 30-day suspension we imposed in Schwartz. Specifically, he suggests that his sanction be reduced to a 60-day suspension. -[18]- At the time this misconduct occurred, Justiss had been in the industry for less than two years. -[19]- All of the contentions advanced by the parties have been considered. The contentions are rejected or sustained to the extent that they are inconsistent or in accord with the views expressed herein. UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. 34-37074 \ April 5, 1996 Admin. Proc. File No. 3-8697 _________________________________________________ : In the Matter of the Application of : : RONALD H. V. JUSTISS : 1445 S. Elm : Denver, Colorado 80222 : : For Review of Disciplinary Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : _________________________________________________: ORDER SUSTAINING DISCIPLINARY ACTION TAKEN BY REGISTERED SECURITIES ASSOCIATION On the basis of the Commission's opinion issued this day, it is ORDERED that the disciplinary action taken by the National Association of Securities Dealers, Inc. against Ronald H. V. Justiss, and its assessment of costs with respect to him, be, and they hereby are, sustained. By the Commission. Jonathan G. Katz Secretary