Narrative Opinion Summary
The case involves an appeal by First Independence Group, Inc. (FIG) and its principals against an SEC order upholding disciplinary actions by the NASD. FIG, a registered broker-dealer, was found to have charged excessive markups on securities transactions, violating NASD Rules and the Securities Exchange Act of 1934. The firm engaged in riskless principal transactions with markups ranging from 11.11% to 186.46% above their costs, primarily involving thinly-traded securities. The NASD's District Business Conduct Committee imposed substantial fines and professional sanctions on FIG and its principals, Frank P. Giraldi and Mark S. Milana. Subsequent appeals to the NASD National Business Conduct Committee and the SEC were unsuccessful. In reviewing the case, the court evaluated the SEC's legal conclusions for arbitrariness and factual findings for substantial evidence. The SEC's determination of the prevailing market price relied on the dealer's own contemporaneous acquisition cost, dismissing petitioners' reliance on dealer quotations as unreliable. The court affirmed the SEC's order, finding the sanctions justified and rejecting all other contentions from the petitioners.
Legal Issues Addressed
Prevailing Market Price Determinationsubscribe to see similar legal issues
Application: The SEC determined the prevailing market price based on the dealer's own contemporaneous acquisition cost as the best evidence when not acting as a market maker.
Reasoning: The prevailing market price is based on inter-dealer trading prices, with a dealer's own contemporaneous acquisition cost being the best evidence when not acting as a market maker.
Reasonable Markup on Securities Transactionssubscribe to see similar legal issues
Application: Markups exceeding 5% of the prevailing market price are generally deemed unjustified under NASD Rules, and the petitioners' markups significantly exceeded this threshold.
Reasoning: A securities firm acting as a dealer can charge a reasonable markup on the wholesale price it pays for securities, with markups exceeding 5% of the prevailing market price generally deemed unjustified, per NASD Rules.
Securities Law Violation Under NASD Rulessubscribe to see similar legal issues
Application: The case involved the petitioners being sanctioned for charging unfair and fraudulent markups in violation of the NASD Rules of Fair Practice and the Securities Exchange Act of 1934.
Reasoning: The NASD sanctioned the petitioners for charging unfair and fraudulent markups on securities transactions, violating NASD Rules of Fair Practice and the Securities Exchange Act of 1934.
Substantial Evidence Standard in SEC Reviewsubscribe to see similar legal issues
Application: The court reviewed the SEC's factual findings for substantial evidence and found that the SEC's decision to affirm the sanctions was supported by such evidence.
Reasoning: The court reviews SEC's legal conclusions for arbitrariness and factual findings for substantial evidence.