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Securities brokers who lie under oath to the National Association of Securities Dealers (NASD) can face perjury prosecutions in state criminal court, an appeals court in Manhattan has ruled. In a unanimous ruling, the Appellate Division, First Department, said that violations of the NASD’s oath are not solely the province of federal courts because the agency has long been construed as a private self-regulatory body rather than a federal entity. The court’s decision upheld the perjury convictions of four brokers at Renaissance Financial Securities Corp., a Long Island investment firm investigated by the NASD. The brokers were originally convicted of fraud, too, but a Manhattan judge threw out those convictions in November 2001. “The NASD is not an exclusively federal tribunal, nor was it acting solely pursuant to federal law when it investigated defendant’s actions,” Justice Peter Tom wrote for the court in People v. Cohen, 2266. “Rather, NASD is a self-regulatory body that protects both federal and state interests in policing the securities industry. The State of New York therefore has jurisdiction to prosecute the crime of perjury committed within the State of New York, though before the NASD.” An attorney for the defendants said they would appeal the ruling. In the late 1990s, Stanley Cohen, his son Adam, and his daughter Jamie K.C. Scher joined Renaissance, which was owned by Todd Spehler. According to the appellate ruling, Stanley Cohen soon took on most of the responsibility for hiring and firing traders and directing strategy, despite having been barred since 1973 from taking on a supervisory role in a broker-dealer company. When the NASD began to investigate Stanley Cohen’s involvement with Renaissance, Mr. Cohen, his children and Mr. Spehler allegedly lied under oath to cover up Stanley Cohen’s active role in the business. Prosecutors in the Manhattan District Attorney’s Office won convictions of fraud and perjury against the defendants. Manhattan Supreme Court Justice Bernard J. Fried threw out the fraud convictions after ruling that a broker-dealer license could not be considered property under a scheme to defraud statute (NYLJ Nov. 6, 2001). Justice Fried upheld the perjury convictions. A year earlier he had issued a first-impression ruling that allowed the defendants to be tried under New York’s perjury law for statements made to the NASD. On appeal, the defendants relied in part on a U.S. Supreme Court ruling from 1890, Thomas v. Loney, 134 US 372, to argue that an oath given in a proceeding that involved federal law could not result in a state perjury conviction. In Loney, the Supreme Court held that a state perjury conviction could not be sustained where someone lied under oath to a state notary public about a contested congressional election. The oath, the high court said, was required only under federal law. The First Department rejected the Loney comparison, ruling that the state had an interest in prosecuting the Renaissance employees and the province to do so. The NASD, the court said, was not the equivalent of a federal entity. “We agree with the trial court that just as there is no legal basis to construe the NASD to be a federal agency, there is no de facto basis to construe that the NASD enjoys some measure of federal sovereignty by virtue of SEC oversight and the NASD’s necessary reference to federal laws,” Justice Tom wrote. The court pointed out that this prosecution differed from an unrelated case in which Justice Fried dismissed state perjury charges involving statements made to a true federal agency: the Securities and Exchange Commission. In that case, People v D.H. Blair & Co., 2002 NY Misc LEXIS 317, Justice Fried found that the statements violated the federal perjury statute and could only be punished in federal court. Mark L. Freyberg, who represented Adam Cohen and Ms. Scher, said the defendants would seek an appeal. “The decision does not deal with the important question of where the NASD gets its power to administer an oath,” Mr. Freyberg said. Since that power comes from federal law, he said, perjury claims involving the NASD should only be prosecuted in federal court. Jeremy Gutman represented Stanley Cohen. Roger J. Schwarz represented Mr. Spehler. Assistant District Attorney Gina Mignola argued the appeal for the Manhattan District Attorney’s Office.

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