On appeal from the Department of Law and Public Safety, Division of Consumer Affairs, New Jersey Bureau of Securities.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted November 10, 2011
Before Judges Axelrad, Sapp-Peterson and Ostrer.
Appellants, Perpetual Securities, Inc., Cathy Y. Huang, and Youwei P. Xu (collectively, appellants), appeal from a final agency decision of the New Jersey Bureau of Securities (the Bureau) revoking Perpetual's broker-dealer registration, revoking Huang's and Xu's individual agent registrations, imposing a $10,000 penalty against Xu, and imposing a $30,000 penalty against Huang, of which $20,000 represented a penalty for Huang's failure to produce records. We affirm.
Perpetual is a brokerage firm registered in New York. Huang is Perpetual's part-owner, Vice President, and Compliance Officer, and Xu is its part-owner, CEO, and President. Before the events giving rise to the instant appeal occurred, the National Association of Securities Dealers (NASD) initiated enforcement actions against Perpetual arising out of its failure to pay an arbitration award issued by NASD on November 14, 2000.
On November 25, 2002, NASD suspended Perpetual's registration based upon its failure to pay the arbitration award. Throughout the suspension proceedings, Perpetual was represented by counsel, and it was Perpetual's attorney who received notice of the Suspension Decision via facsimile and first class mail. A courtesy copy of the Suspension Decision was also sent to Huang.
Despite the suspension, trade blotters and trade confirmations showed trades executed by Perpetual during December 2002 and January 2003. According to Huang, who was interviewed during the Bureau's investigation, Perpetual continued to engage in securities transactions during this period because notice of the suspension was not received until January 14, 2003. Huang also admitted Perpetual made arrangements for customers to execute trades during the suspension period through Perpetual's internet trading platform. She told the investigators that after January 14, "she called all her clients and told them that they could no longer make any purchases or sales in their accounts; and if they needed to engage in any transactions, they should contact her clearing firm, Advantage." NASD reinstated Perpetual on May 16, 2003.
NASD next filed an administrative complaint against appellants on June 30, 2004. On September 7, 2004, appellants appeared pro se and filed an answer to the complaint. A hearing conference was scheduled, but appellants requested and were granted a postponement. They attempted to postpone the conference again hours before the rescheduled hearing was set to begin due to Huang's alleged health condition. The hearing officer denied the request because Huang had spoken to the case administrator on the phone two hours prior to making the request and was able to communicate on the phone easily, and she made no reference to a health condition. When appellants failed to appear as scheduled, the hearing officer issued an order finding them in default. Another hearing was scheduled, this time to provide appellants an opportunity to explain why the default order should be vacated, but they failed to appear at that proceeding. On July 1, 2005, a default decision was issued, with the hearing officer finding appellants conducted business while subject to a suspension in violation of NASD rules.
Appellants appealed the NASD default decision to the National Adjudicatory Council (NAC), which upheld the NASD decision finding that Perpetual operated while suspended and that Huang had provided incomplete and untimely responses to NASD's requests for information. As a result of its decision, NAC expelled Perpetual from NASD membership and barred Huang and Xu from conducting securities business in any capacity.
Appellants appealed the NAC decision to the Securities and Exchange Commission (SEC), and the SEC sustained the NAC's findings on October 4, 2007. Appellants filed a motion for reconsideration, but the SEC denied this motion on December 13, 2007.
While the proceedings before the NAC and SEC were pending, the Bureau was conducting its own investigation. During the course of this investigation, Bureau investigators met with Huang on March 4, 2004. The investigators requested that Huang produce certain records, which Huang said she could not do because all of Perpetual's records had been destroyed when she and Xu decided to close the business.
After this interview and after gathering other information, the Bureau Chief issued a five-count administrative complaint against appellants on October 14, 2004. Count I alleged "Perpetual was the subject of an order of a self-regulatory organization suspending it from a national securities association[,]" N.J.S.A. 49:3-58(a)(1), (2)(vi). Count II alleged Perpetual "continued to engage in the sale of securities while" under suspension by the NASD, and from November 25, 2002 until May 16, 2003, Perpetual engaged in over 600 transactions and received commissions, in violation of the NASD suspension order, N.J.S.A. 49:3-56, -58(a)(1) and -58(a)(2)(ii); N.J.S.A. 49:3-70.1. Count III alleged "Huang and Xu, as senior executives and control persons of Perpetual, failed to maintain books and records for three years[,] in violation of [New Jersey] securities law[s]," N.J.S.A. 49:3-58(a)(1) and -58(a) (2)(ii); N.J.S.A. 49:3-59(b); N.J.S.A. 49:3-70.1. Count IV alleged "Huang made false and misleading statements to Bureau staff in connection with an investigation," N.J.S.A. 49:3-54, -58(a)(1) and -58(a)(2)(ii); ...